Private equity is one of the most popular asset classes available to investors. Private equity investments can be difficult to make sense of, as there are many different ways that investors can enter the space. With that being said, you need to understand how private equity operates and why it has become so popular in recent years with high-net-worth individuals and institutional investors alike. The following article will dig into the common strategies incorporated in private equity investments:

Strategy 1: Buyout Investments

Buyout investments are one of the most common ways to invest in private equity, largely because they are generally easier than venture capital investments. Buyout funds usually are high-net-worth individuals who pool together money from investors and use that capital to buy out existing companies. The goal is to take these companies public or sell them for a profit. There could be several reasons a current company is purchased, such as mismanagement or simply underperforming relative to other stocks.

Strategy 2: Venture Capital Investments

An investor, for example, STORY3, managed by Peter Comisar, will fund a startup company looking to create new products and services in a venture capital investment. Although the risks are greater, these investments typically carry a higher rate of return than buyout funds because the startup companies do not have any current revenue streams.

Strategy 3: LBO Investments (Leveraged Buyouts)

LBOs are used to purchase a company at a much lower price than what the company's current market value is. This can be done by taking out more debt, such as previously owed debt to the company and selling the company. This type of private equity investment is more complex than buyouts because it requires more time and involves other investors. However, with leveraged buyouts, all buyers are required to put up capital (known as "equity") equal to the total purchase price of the company.

Strategy 4: Mergers and Acquisitions

Another common way of investing in private equity is through mergers and acquisitions. In this strategy, an investor will typically act as the winning bidder of a takeover deal. This is similar to buying shares in a publicly-traded company where the company's stock price is held constant. In this situation, the investor is essentially using a large amount of money to purchase shares from the company in question that many other investors had previously owned.

Strategy 5: Debt Investments

Debt investments are another common way that private equity investors invest in companies. As with most other investment strategies, debt investments are used to buy out an existing company or invest in a startup with no current revenue streams. An investor will take out large amounts of debt in debt investments and use that debt to purchase a company or fund a startup. In most cases, the company being bought out has no current revenue to pay off this debt and must rely on other investors over time.

Strategy 6: Structured Products

In most cases, structured products are created to make certain types of investments or investments considered too risky for other investors. An investment vehicle is created from existing stocks or bonds sold specifically in a structured product. These products are typically sold by licensed brokers who specialize in selling them.

Conclusion

It cannot be easy to know what private equity investment strategies are and how they differ. However, understanding these various types of investments will help you make more informed decisions as an investor.