| Private equity investing means making an | | | | Certain countries have stringent or archaic |
| investment in securities through a negotiated | | | | corporate laws, which might make acquiring or |
| process. Majority of these investments are in | | | | divesting companies very difficult. You also need |
| companies that are not listed on the stock | | | | to watch out for accounting and disclosure norms, |
| exchange. While private equity investing can | | | | as well as any limitation of powers of foreign |
| deliver impressive returns, it is more prone to risk | | | | investors. All of these could severely impact your |
| than other forms of financing, such as debt. | | | | ability to exert influence as a key stakeholder. |
| If you're planning to do some private equity | | | | Also check for the availability of legal, accounting |
| investing of your own, consider the following:o | | | | and banking support services. |
| Determine the main goals for the overall | | | | In developed economies, there are many ways of |
| portfolio.o Decide the size of private equity | | | | realizing value from private equity investing, but |
| allocation.o Diversification is a vital aspect of any | | | | that is not necessarily true of all countries. Before |
| portfolio. It's wise to maintain a healthy mix of | | | | deciding on private equity investing, be sure to |
| target companies across geographies and | | | | investigate the state of the capital markets and |
| industries.o Remember that returns might be | | | | assure yourself that a proper exit mechanism |
| volatile in the short-term. Be prepared to stay | | | | exists. |
| invested for a reasonable time period, generally | | | | Market risk: The management team of target |
| five to ten years.o Returns from private equity | | | | companies will certainly present a rosy picture of |
| investing can only be realized when the stakes | | | | their market and its future potential. Be sure to |
| are sold. Therefore, there must be easy options | | | | independently verify the data. Some sectors such |
| available for exiting the investment.o Returns are | | | | as real estate are highly volatile, and investing all |
| always proportionate to risk. Make sure you don't | | | | your resources in these businesses could prove |
| err in your judgment of the latter. | | | | disastrous. |
| We already mentioned that private equity | | | | Another element of risk that needs close |
| investing faces a range of risks that could be | | | | examination is the quality of human resources. |
| more severe than in other types of investments. | | | | Often, entrepreneurs do not have prior working |
| Experienced investors can minimize some of the | | | | experience in professionally managed companies, |
| likely risks, but cannot eliminate them completely. | | | | which could affect their ability to manage the |
| Environmental risk: Some countries suffer from a | | | | business. Remember that most smart private |
| higher degree of political and economic instability, | | | | equity investors will never back a management |
| which is generally inimical to business. These | | | | team that doesn't match up. |
| countries are also likely to experience currency | | | | Due diligence is essential when embarking upon |
| fluctuation and arbitrary changes in regulations. | | | | private equity investing. Books like "Venture |
| Again, emerging markets are notorious for their | | | | Capital and Private Equity: A Casebook" from |
| bureaucratic hurdles and associated corruption. | | | | could help you understand this subject better. |