5 Common Types of Private Equity (PE Funds) for You to Consider
Are you looking to make some money by investing in PE funds? But don’t know where and how to start? Then, seek professional assistance and start “Developing a Private Equity Fund with 360 Capital.” Here I’m going to list down a few profitable types of PE funds that you can absolutely consider.
Venture Capital (VC)
VC funds are pools that are specifically designed to invest in small emerging businesses. VC targets businesses that hold the potential to grow in the long-run. SME enterprises typically have limited access to financial funding. Since small businesses have no access to other forms of capital, VC fund pools work well and offer ambitious value propositions. VC funds are the prime source for SME businesses to raise capital quickly. From investors’ perspective, VC funds carry risks as they are investing their money in uncertain emerging businesses, but they are known to generate high returns.
Leveraged Buyout (LBO)
Buyout or Leveraged Buyout are designed to invest in already established or into more mature businesses with a stable cash-flow position. LBO funds are contrary to VC funds and offer the controlling rate of interests. When it comes to LBO funds, the investors get to enjoy leverage. This way, they can earn a high rate of returns.
LBOs get controlling stakes in partnership firms and PEs. Generally, PE firms prefer 50 percent equity financing and 50 percent debt financing. LBOs are the popular types of PE funding options to offer strong financial health.
Growth Equity Funds
Like LBOs, growth equity funds tend to invest in mature corporates with scalable operations. These businesses happen to target new markets. When compared with VC funds, growth equity funds invest more broadly in terms of different industries. Growth equity funds rely on the “high-growth” industry and hold a position between pure-play LBO funds and later stage VC funds.
Growth capital funds tend to target businesses with successful models, high market share, and the potential to generate high profits.
Real Estate Private Equity (REPEF)
REPEFs invest in businesses that have direct ownership in various real estate properties. REPEFs experienced a surge after the financial crisis in 2008. During that period, the prices crashed for both commercial & non-commercial properties.
When it comes to real estate private equity funding, the investors intend to deploy money to real estate investment trusts and commercial real estate. RE funds demand high minimum capital as compared to VCs, LBOs, and growth equity funds.
Real estate funds have different strategies like core (investments made in low-risk businesses with stable cash flow), core plus (moderate-risk investments), value added (medium-to-high return strategy), and opportunistic (high risk or high return strategy).
Distressed Funding
Distressed funding is also called ‘vulture financing,’ and is specifically designed to invest money in troubled companies. Distressed funding targets underperforming business assets or units. The core idea behind distressed funding is to gain a substantial position or make necessary changes to business management or operations.
Distressed funding exclusively targets businesses that have already filed bankruptcy. Like real estate funding, there was also a rise in distressed funding after the 2008 financial crisis.
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