The Aspirational Investor: Taming the Markets to Achieve Your Life's Goals by Ashvin B. Chhabra

Author:Ashvin B. Chhabra
Language: eng
Format: epub
Tags: Money, Online
Publisher: HarperBusiness
Published: 2015-06-02T04:00:00+00:00

PRIVATE EQUITY

Another variation on extracting return from the equity market is private equity. The strategy aims to deliver excess returns by identifying public companies that are distressed or have fat balance sheets and can be taken private for restructuring. To be successful, private equity managers need long-term capital from investors who seek excess return, in exchange for investing over a long time horizon and accepting illiquidity.

The nature of private equity is unique. Investors must commit to making a series of pre-specified funding commitments to the manager, known as capital calls. Armed with the capital, private equity managers then look for takeover targets. With complete control, they take the company private, substantially restructure it, and pay investors back along the way through distributions in the form of large, special dividends. The goal is to seek a public offering or convince a larger company to buy the restructured entity, at which point investors earn a major payout.

A typical private equity fund has a three-year investment period and a ten-to-twelve-year total life. In order to compensate, in part, for the long time horizon and illiquidity of the capital committed, returns from such a strategy are expected to be considerably higher than those achieved by simply taking minority stakes in publicly traded companies via the equity market. Target returns for private equity are typically 5 to 10 percent a year above public markets.

Private equity investments, although illiquid, typically belong in the market bucket.

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.