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While private equity may be a “sophisticated” asset class, its defining characteristics are straightforward: PE is an ownership interest in a private company or other private asset. PE investors derive returns from capital appreciation and the growth in value of the assets held, often playing an active role in driving that growth, whether by financing acquisitions, taking public assets private as part of a long-term strategy, or restructuring balance sheets.
Alternative investments rooted in the space of private equity a can bring significant benefits to investment portfolios through diversifying exposure away from traditional fixed income and equity assets. They also mitigate market volatility present in more traditional investments like those found in public markets.
We have found that with a basic understanding of the attributes and goals of PE investing, Unistop Financial can help clients navigate this huge market to show the most promising opportunities for maximizing risk-adjusted returns and diversifying portfolios. Here are three key fundamentals:
So, what does a typical allocation to PE looks like. Institutions target, on average, a portfolio allocation of between 6% and 13% to PE investments in total, according to several alternative investment research firms. For individual qualified investors, though, allocations to PE can vary widely, depending on long-term investment goals, liquidity needs, and risk appetite.
Investors looking to enter the Private Equity arena need a competitive advantage, and the secret weapon is knowledge and conviction. But how can they come to the deal table with knowledge and conviction in a niche industry where they are not the expert?
To get to a yes or no investment answer faster, you are better spending your time combining “know-how” with “know who.” And that is exactly what Unistop Financial will show you how to do.
Given fast deal timelines, potential investors need to be able to access solid rationale and logic to decide whether to invest in a project or not.
First, you must figure out if you want to enter the industry. Your deal team should also look at the big picture finding trends that are not currently affecting the industry but could in the future.
Next, you need to decide if this is a company you want to invest in. You must get through the stages of interest and decide an investment level.
How PE gathers information in a compressed timeline
To find the facts and information you need about a deal, PE firms use several methods:
- Viewing of industry reports distributed by consulting firms. These are shopped to all PE firms and have little differentiation. They have high-level insights, but few details.
- Digging into industry financials to prove a norm. These financials, however, do not consider future forecasts.
- Searching databases focused on privately held firms, like Pitchbook, to verify numbers. Keep in mind, the numbers provided in these reports are only as correct as the firm reports them and do not include any future forecasting information. The reports receive a confidence rating of less than 100% in databases. To make an investment solely based on information gathered from databases is risky.
- Speaking with advisors and experts. These conversations give more color to the industry and future forecast, but there are limitations to each person’s view. Perspectives can be subjective instead of aim. This is where you can gain the knowledge you need beyond basic information. Unique benefits of speaking with advisors
Researching vs speaking with advisors
Your best path to yes or no is to combine information with applied knowledge or to conduct research and speak with advisors. The key is combining information with knowledge. Without question, you should read industry reports. But you should also speak with advisors to find blind spots that are not available in reports.
By speaking with expert advisors, you can get the real story along with the financial numbers a target company might provide. Advisors can help confirm financial numbers and paint a bigger picture, finding what an industry looks like now and forecasting what it will be in the future
When you are ready to speak with advisors, do not waste time trying to connect with advisors who may be of value on their own. Partner with Unistop Financial we are ability in homing in on the right individuals, vetting individuals for specific knowledge and setting up meetings to help you make that all-important investment decision.