Fundamentals of Private Equity

February 28 2023

Private equity is a form of investment that involves the acquisition and management of companies that are not publicly traded. Private equity firms typically purchase a controlling stake in these companies, with the goal of turning them around and then selling them at a profit. The private equity industry has grown significantly in recent years, and it is now a major source of funding for businesses of all sizes.

One of the fundamental principles of private equity is that it is a form of alternative investment. This means that it has a significantly low correlation to public equity markets. The low amount of correlation can make private equity a valuable addition to an investment portfolio, as it can help to reduce volatility, diversify risk and provide investors with strong risk-adjusted returns above public equities.

Private equity firms typically raise capital from a range of investors, including institutional investors such as banks, insurance companies, pension funds and endowments, as well as ultra-high-net-worth individuals and family offices. The minimum investment amount for these investors to participate into a private equity fund is generally greater than $10 million in size. This capital is then typically invested across 8-12 companies comprising of the portfolio, with the goal of driving growth and increasing the value of the company prior to it being sold, to ultimately provide strong risk-adjusted returns to investors.

There are several different types of private equity firms, each with a different investment strategy. Some firms focus on growth equity, which involves investing in companies that have a strong growth potential. Other firms focus on buyouts, which involve purchasing controlling stakes in companies and then working to improve their operations and financial performance.

One of the key advantages of private equity is that it can provide companies with the capital they need to grow and expand. Private equity firms can help businesses to access the capital they need to invest in new equipment, expand into new markets, or acquire other companies. This can be especially valuable for smaller companies that may not have access to traditional forms of financing.

Private equity firms also bring a wealth of experience and expertise to the companies they invest in. Many private equity firms have teams of experienced professionals who can help to improve operations, implement new strategies, and drive growth. This can be especially valuable for companies that are struggling and in need of a turnaround.

Another advantage of private equity is that it can provide investors with the potential for high returns above traditional asset classes like publicly traded shares and bonds. Private equity firms are often able to achieve high returns by having a disciplined investment approach to acquiring profitable companies that are undervalued or that have a strong growth potential independent of the current economic cycle. This can make private equity an attractive option for investors looking to achieve high returns from their investment.

Vantage’s Funds are one of Australia’s leading Private Equity Fund of Funds managers, provides sophisticated investors with access to a highly diversified portfolio of Australia’s top tier performing private equity funds and investments, with a minimum investment of only $100,000. Vantage’s disciplined and proven investment approach to private equity investing has to date delivered investors stronger returns at a lower risk than that delivered by public equities over the medium to long term.

To request further information on Vantage’s currently open fund, please contact your financial advisor or alternatively email to request a meeting with a Vantage executive to learn more.