Understanding Private equity alternative investments

Alternative investments act as a vehicle to diversify your portfolio, crucial in times of uncertainty as we are facing today. However, there are many options available for those looking for alternative investments, everything from Fine Art assets to Bitcoin.

Many of these alternatives carry high risk alongside the potential for good returns, but as more and more begin to look for the right alternative investment to suit, one is growing rapidly.

That is private equity alternative investments, an area that has seen rapid growth, and private equity firms find a growing demand from businesses across all sectors.

Fundamentally, private equity refers to an investment in a company that is not traded on the stock market or otherwise available for ownership purchase.

However, as an alternative investment, this is usually achieved by investing in a private equity fund managed by a single company.

There are benefits for both sides of this equation, while businesses, often start-ups, may be reluctant or unsuitable for public share ownership, few businesses today can grow without significant investment.

The reality is that business growth is costly. However, through a private equity fund, those same businesses are able to access the funding they need. While they also relinquish some level of ownership alongside that influx of funding, this allows businesses who are going through a period of rapid growth or capital requirement for other reasons to access the funding they need.

Importantly, for those seeking out opportunity, private equity alternative investments provide a managed, accessible way to profit from the often-rapid growth of businesses today. 

The private equity fund can use a number of approaches to deliver investment into businesses, these include:

• Venture Capital – Funding for start-ups or early stage businesses
• Development Capital – This could be funding to provide infrastructure for a new product
• Buyout Funding – Providing the funding to purchase an existing company

Others are restructuring funding for distressed companies and other kinds of debt finance; however, this kind of investment often increases risks too, something that every investor must always be aware of.

For investors, the private equity fund requires an investment for a specific period. Known as the capital commitment, this period varies, with 3 to 5 years being common, although as long as 10-year investments are on offer.

These investments are managed by the private equity alternative investments firm, with investors receiving returns as the fund exits investments. These returns are often referred to as distributions.

Profitability will depend on the type of investments made and the risk involved. For instance, the most likely opportunity for the largest growth is in a start-up, however, that is also where the highest risk of business failure can be found.

Unlike some alternative investments, private equity funds require a medium-term commitment, and it is crucial to establish the risk profile of any fund you consider before committing. With that said, private equity alternative investments are growing in popularity for a reason, and they offer a great opportunity for investors.

For the full breakdown on why Australians should invest in Alternative Investments, check out our article: Why Alternative investments should be part of your portfolio?

We welcome you to schedule a time and one of our advisors or give our advisors a call to discuss your investment goals and objectives.

You can call Walker Capital Australia on +61 2 8076 2210, and we’ll see how we can help you achieve your investment goals.