2 minPrivate equity and why it is popular with investors seeking new investment opportunities
A “private equity” investment is an investment in equities issued by companies that are not listed on a stock exchange. But how does this work exactly? Who is this type of investment aimed at? And what are the objectives?
How does it work?
Investing in private equity allows you to participate in the capital of companies with high growth potential. Private equity funds acquire shares in the capital of an unlisted company and participate in financing and supporting the development of the company, as well as providing operational improvements with the ultimate aim of enhancing the company’s value.
What are the most common strategies?
- Venture capital (or risk capital) strategies, which invest in young companies with high potential for growth in the long term.
- Growth capital strategies, which target more mature companies, helping them to expand and develop.
- Buyout strategies, which focus on established companies with continuous, predictable cash flows that perform more reliably for their investors, financing their expansion through targeted acquisitions to supplement organic growth.
Who is this type of investment aimed at?
In the past, private equity was primarily aimed at institutional investors. Now, however, private equity is becoming increasingly accessible to well-informed retail investors willing to commit sums of at least EUR 250,000 for investment horizons of 10 years or more.
What are the returns and how is value added?
Private equity is an alternative asset class that seeks to provide higher returns than traditional asset classes. These higher expected returns reward investors for choosing a riskier, illiquid investment with a longer investment horizon.
Here are a few of the ways in which value is added for the target company and therefore the investor:
- Revenue growth for the target company (increased sales volumes, higher prices, etc.)
- Operational improvements (reduced costs, organisational restructuring, etc.)
- Leverage (via financing)
- Multiple expansion(s)
- etc.
Private equity at Banque de Luxembourg
The Bank’s clients have access to an exclusive range of private equity investments. This means that well-informed retail investors have the privilege of accessing a sought-after asset class they can use to expand their investment opportunities.
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