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What To look For in a Private Equity Fund Manager

What Is a Private Equity Fund

A private equity fund is a collective investment vehicle that pools together investor money, and an adviser or manager uses that money to invest on behalf of the owners. Some of the investors’ funds used are pension funds, hedge funds, university endowments, or money from wealthy individuals. The tenure for these funds is 5-10 years, but this can be extended annually.

Private equity gives an alternative investment option by allowing you to invest in capital goods not listed on the public exchange. It is composed of funds and investors who make direct investments in private companies or buyout public companies, resulting in the delisting of public equity.

Investing in Private Equity

The idea of investing in private equity is exciting to many, but often, people shy away from a lack of knowledge of how to go about the private equity market. Fortunately, you do not need much knowledge about it because to invest in private equity directly, you need to do it under a private equity firm that pools the money required for investment.

Consequently, choosing a proper private equity funds manager to invest with is a crucial consideration when seeking to have good returns, primarily because, in this industry, the return dispersion is vast. In addition, in the current conditions, since the returns are considerably lower than before, you need a manager with the ability to look at the market closely and identify the best trading opportunities available.

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Also, since this industry has no guarantees of future returns, it helps if you have a private equity fund manager capable of making the right decisions all the way.

Choosing a Private Funds Manager

are factors to look at when choosing a private equity funds manager.

1. The Value Creation Techniques Used

A fund manager uses value creation drivers to establish consistent patterns of value addition before choosing the investment vehicle to take. The drivers determine the manager’s success and accuracy in identifying the right trade opportunities. So, assess the strategy used to determine how it fits with the prevailing market environment and evaluate its performance over the investment period.

Be careful to see whether the strategy chosen is consistent with the manager’s past practices. It may be that a previous approach no longer works, and the manager is working to find opportunities in another sector or using strategies with which the manager has little experience.

2. The Investment Structure

Private equity firms have different investment structures, and determining the investment type taken up is crucial before choosing your manager. Each funds manager has a preferred investment system that includes a preferred investment industry, source of investment funds, and equity size, among other elements. Evaluate each manager’s portfolio based on these and other relevant factors to determine if they fit in with your investment goals.

3. Track record

The manager’s track record is indicative of their understanding of the market and their performance. But, while a manager may have an attractive track record, on an absolute basis, it could be that the results are a reflection of favorable market conditions in vintage years. So, before making a decision, compare the manager’s historical performance to other funds in the same year to weigh their relative performance.

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4. Deal-Sourcing Capabilities

The ability of a manager to source a large volume of high-quality investment opportunities is essential. Equally important is the manager’s ability to identify and beat the competitors to the lucrative trade opportunities. A funds manager should have a set of strategies and networks to aid the process of identifying and prioritizing investment opportunities efficiently.

In Closing

Investing in private equity can be a lucrative venture, but it takes putting your funds in the hands of a capable equity funds manager. The qualities above should help you identify a manager that understands your interests and links you to suitable trade opportunities for maximum returns.

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