Private Equity Investment Strategies

Three Different Types of Private Equity Investment Strategies

Private capital (direct investment) is capital that differs from others in that it cannot be traded publicly on the stock exchange. Private equity is created directly through direct investment by private investors and mutual funds, which in turn invest directly in private companies or buy back shares of public companies, which leads to their exclusion from the listing of public companies. Direct investment capital is attracted from both private and institutional investors and can be used to finance the introduction of new technologies, increase its own working capital, make acquisitions and significantly improve the balance sheet structure. Today there are different private equity investment strategies.

Private Equity Tutorial

Most private equity investments are made by institutional and accredited investors who can invest large amounts of money over a long period of time. Private equity investments often require a long holding period to take advantage of favorable market trends (which may not happen soon) or a liquidity event such as an initial public offering (IPO) or a public company takeover. The volume of the market for direct investment in private capital is growing steadily every year.

Private equity firms sometimes pool their funds to acquire a large public company and thus become a private company. Many of these firms undertake so-called leveraged buyouts (LBOs), in which debt is issued and the proceeds are funneled into a transaction. Then private equity firms try to improve the financial results and development prospects of the company in the hope of reselling it to another firm or trying to cash in on an IPO.

The Main Types Of Investment Strategies In Private Equity

It should be noted that there is most likely no specific guide to private investment. But the TOP-3 investment strategies for direct investments include the following types:

Long-term Investment

In the financial world, this type of strategy is called value investing. One of the most famous proponents of this approach is Warren Buffett, who prefers to buy stocks that are worth less than he thinks. This strategy can pay off in the long run. If you create a portfolio of several stocks and other financial instruments, it will also reduce the risks of financial loss. Choose this strategy if you are risk-averse and patient enough.

Dividend Model

This strategy is to buy shares of companies that pay dividends and receive income from them.

Choose this strategy if you want to avoid serious risks and have solid capital that will allow you to buy a large package of securities and count on solid dividends.

Investments In New Companies

This strategy assumes that you are counting on a rapid rise in the value of the stock. If a company’s stock is growing faster than the market, then, even though its value is high, it can be a good investment idea. Choose this approach if you want to make money quickly, but are also prepared for significant risks.

Outside this list are investments in speculation. What is the main “highlight”? Active speculation on the stock exchange is profitable due to changes in the prices of financial instruments during the day. This strategy includes the so-called “manual trading”, or scalping, as well as trading using special software. This complimentary strategy guarantees you making daily profit, but with a high probability of some loss and risk.