Financial Education

When considering an investment in private equity, investors need to consider a number of factors.

• Can a small investor obtain the diversification needed
• Does the investor have liquidity needs that would prohibit tying up funds for 7-10 years
• Will the investor be able to fund promised commitments to the private equity fund when called for
• What mix of sector, stage and geography is required to provide the best diversification

In addition, selecting managers requires special due diligence considerations:

1. Can the investor and manager evaluate prospects for market success
   • Understanding of the markets, competition and sales prospects
   • Experience and capabilities of management team
   • Management’s commitment – ownership, compensation structure, etc
   • Opinion of customers
   • Identity of current investors – do they have particular expertise that lends confidence to outsiders
2. Operational review
   • Have experts validated the technology
   • Consideration of employment contracts
   • What intellectual property rights have been established
3. Financial and legal review
   • Potential dilution of interest
   • Financial statement (or tax returns, or investor-conducted audit)

For more information, see all articles on: Active Management, Alternative Assets, Asset Allocation, Investing in Private Equity, Investment Returns, Portfolio Management

See also:

Investments in Private Equity

The Role of Private Equity Investments in a Portfolio

The Structure of Private Equity Funds

Types of Alternative Investments

Due Diligence for Hedge Fund Managers