What Is Private Equity In Layman'S Terms?
- Rajesh Desai
- Dec 24, 2021
- 2 min read
A private market is essentially the marketplace where companies and financial assets that are not listed in the public domain can accept investments. Investing in a private market is a lot different than investing in public markets. Private Equity is essentially the shares of a private company. If you live in Singapore like me, you can find all the needed information on the internet just by searching ‘Private Equity Investment Singapore’.
However, there are a few other things that can be easily overlooked and as a result of this, the investment turns against your best interests very quickly. To help you avoid making the same mistake of overlooking the minor details, here are 2 things to keep in mind when you make a private equity investment -
Always gauge the risk-to-reward ratio
Not all investment opportunities are made equal, some are long-term, some are mid-term and some even tend to accelerate quickly and come out as amazing short-term deals. However, choosing which asset class suits your portfolio perfectly requires you to have a thorough understanding of your tolerance for risk and the return potential of that particular investment. To clarify further, investing in an established company is surely not risky as they have already penetrated the market. However, these companies are also near their growth saturation point and as a result, are not capable of providing you with the returns that a newly established company can.
Understand the company’s track record
Understanding the company’s financials and their past business accomplishments gives you a brief idea of the ideologies and the work ethics they follow. Obviously, past results are no way to determine the future but this claim also has to be backed by solid evidence of trend reversal. As an investor, you need to keep in mind to not only look for the company’s past but even give a glance at what they plan on doing to make the near future better.
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