What is Private Equity?

Private equity is a broad term that encompasses a wide range of investments, assets, and other profit generating activities that occur outside of the publicly traded world. Most individuals are familiar with and/or involved in publicly traded securities (partial ownership in companies) and participate in these investments through a stock market vehicle like an investment or retirement account.

Private equity is not traded on a public exchange. It can consist of almost unlimited assets like real estate, service businesses, lending activity, or any other activity that generates profits and value. While the term can seem opaque, most individuals are familiar and involved in a private investment of some form. Anyone who owns a home is already a private equity investor.

What is a Private Equity Fund?

A private equity fund is simply a basket of privately owned assets and business. The purchase of these assets is generally accomplished with a mix of investors’ funds and debt. Real estate is a common holding of the fund, but it also includes other profit and value generating activities like lending, service businesses, and anything else that can generate a return on investments.

Why invest in private equity fund?

Most consumers have exposure to publicly traded securities via the stock market. 401k plans, IRAs and Wall St typically make up a majority of a persons net worth, but a private equity fund offers multiple advantages that publicly traded funds cannot.

Investors misconstrue “diversification” as holding a large basket of stocks and bonds. During major cyclical downturns and uptrends, almost all exchange traded securities are highly correlated in the direction they move. A private equity fund is true diversification. It is an entirely separate asset class, generally disconnected from the public market.

While private equity funds can never “guarantee” returns, most ethical funds will never advertise a “target rate of return” that they cannot be reasonably achieved. Because the fund pays a return and splits the overall profits of these investments, investors should expect significant returns during good economic times and a baseline minimum return, even during difficult economic times. Most importantly, having investments that are non-correlated with traditional investments provides an important hedge against having all eggs in one basket, with the potential for significant gains.

What does Capital Partners offer?

The Capital Partners Opportunity Fund consists of two different investment models with different return structures and different amounts of risk. They serve difference functions in a clients’ overall financial plan.

Cash Flow- Capital Partners offers structured notes with a preferred rate of return. This is preferred interest rate debt payment to an investor for the use of their funds to generate profit. The preferred rate of return is paid before equity investors and is a debt obligation of the fund. This structure is phenomenal for people looking for passive income.

Equity is a return structure that is a combination of a lower preferred rate of return combined with a profit share of total fund returns. Investors who elect this relationship purchase shares of the overall fund and are equity stakeholders. As income and profits are generated by the fund those profits are split between the fund and the investors. There is the potential for a higher return on investment because these investors share the risk of the underlying investments.

What returns should I expect & what are the fees?

Every fund sets its own profit share and management fee structure. When broken down the fees are often commensurate with that of a typical 401k or other managed money account. Private equity firms base their fees and profit sharing on what they need to maintain profitability while rewarding investors. All funds structure these return arrangements differently. There is a wide range of fee and profit structures in the private equity world that vary from company to company. At the end of the day, what should matter most to investors is the net return on investment.