Private equity is a type of investment that involves the purchase of shares in a company -- shares that are not traded on a public stock exchange. Private equity investors provide capital to companies in exchange for an ownership stake in the business, explains Scott Tominaga, Chief Operating Officer of Partners Admin LLC and industry veteran and expert.
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Private equity firms typically invest in companies and businesses experiencing financial difficulties or undergoing a corporate restructuring. The goal of these private equity firms is to improve the financial performance of the companies they invest in and then sell their stakes at a profit.
Where to Start
As Scott Tominaga explains, there are several ways to set up a private equity fund. The most common method of creating a private equity fund is to create a limited partnership, which is an arrangement between a group of investors and a general partner who manages the fund.
Another way to set up a private equity fund is to create a limited liability company or LLC. This structure gives the fund managers more flexibility in how they operate it.
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In Search of Capital
Once you have decided on your private equity fund structure, you need to raise capital. The most common way to get the required money is to solicit investments from accredited investors, individuals, or institutions that meet certain criteria set by the Securities and Exchange Commission.
If you can attract accredited investors and invest in high-growth companies, Scott Tominaga notes that you can set up a successful private equity fund. However, it is important to remember that these types of investments are risky, and you could lose all your investments if the companies you invest in does not perform well.
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