Recently, Douglas Battista sat down to discuss the benefits of private equity funds available to institutional as well as individual investors. In this brief follow-up, we learn the pros and cons of high-dollar private equity investments.
According to Douglas Battista, there are a number of risks associated with any type of investment, especially in the private sector. As Battista previously mentioned, lower buy-in investments often have higher fees than standard (and more expensive) private equity funds. Additionally, as more and more private equity investing options open up, it may become harder for firms to locate reasonable risk opportunities for capital providers.
Douglas Battista cautions novice investors that some private equity investment vehicles cannot show length of history in order to confidently determine risk versus reward. As a rule of thumb, investors should plan on committing their money for at least a decade and look for an investment firm with a history substantially longer than that. Investing for a short time frame (less than 10 years) may lead to lost profits from investments in companies emerging from acquisition.
Individuals and institutions interested in private equity investments should also take care when dealing with investment firms that specialize in a specific industry. Technology, which is currently one of the hottest markets in the private equity realm, carries a number of added risks, points out Douglas Battista. Drawbacks of special interest investment firms include uncertainty in their respective markets and a lack of diversification.
However, Douglas Battista notes that despite the drawbacks of private equity, especially in the technology, software, and biotechnology industries, the potential payoff is huge for investors willing and able to commit 2 to 5% of their investment portfolio funds.
The bottom line is that regardless of where an investor chooses to put his or her money, there is always going to be a risk of financial loss. Battista suggests partnering with a firm that has a long reputation of success and offers transparency with its investors.