Why Ashish Bhandari Believes Private Equity Is a Smart Play For Large-Scale Investors

Ashish Bhandari of Dubai, recently discussed why he thinks private equity is a smart opportunity for both businesses and deep-pocketed private investors.

What Is Private Equity?

DUBAI, UAE / ACCESSWIRE / December 23, 2021 / According to Bhandari, private equity simply allows investors to participate in high-risk, early-stage business ventures. Companies that accept private equity funding typically may not yet be publicly-traded. Or, private equity funders may seek to take a publicly-traded company private.

Two key private equity sub-domains are venture capital (VC) and leveraged buyouts (LBOs). Venture capital is generally early funding aimed at companies that have demonstrated rapid growth or are believed to have high-growth potential. Leveraged buyouts are an acquisition of one company by another using a significant amount of borrowed funds (typically in the form of bonds or loans). The assets of the firm being acquired may be used as collateral for these loans, in addition to the assets of the acquiring business.

Where Do Private Equity Funds Go?

Bhandari says that private equity funding is often used to directly increase the profits of companies the money goes into. For instance, such funding might be used to enhance business systems for developing new management strategies and teams, to research and cut underperforming parts of a business or to reduce overall costs. Companies that have grown primarily through private equity funding over the years have included Federal Express, Harrah’s Entertainment and A&W Restaurants.

Private Equity Isn’t Limited to Large-Scale Investors, But It May Be Ideal for Them

While many private equity funds ask for an initial investment of $25 million – which would typically only be affordable by institutional investors (such as established pension funds and large private equity specialty firms) – Bhandari notes that some funds allow individual investors to participate with as little as $250,000. In fact, single investors wanting to invest less than $250,000 may still be able to get access to private equity investments through funds of funds and exchange-traded funds (ETFs). Nonetheless, Bhandari believes that for ideal returns, large-scale investment is still recommended.

Return Rates Are Variable, and the Long-Term Should Be Considered

Private equity investment can be risky, but it can also be a highly profitable, exciting part of one’s investment portfolio. Principal investors at the middle-market level (investing in deals worth $50 million to $500 million) can potentially earn millions. However, according to Bhandari, fees may be high, and this has the possibility to impact one’s overall rate of return.

Private equity investments can take ten years or more to generate significant returns; typical investment horizons for shareholders in private equity firms are between four and seven years. For these reasons, potential investors should consider timelines carefully and think about whether such timeframes are acceptable.

Your Experience Can Be a Factor

With many private equity investments, the investor will have a say in the direction and strategy of the business. Hence, one’s particular areas of expertise may have a bearing on these and could function as either an asset or a detriment in helping companies to become more profitable, depending on one’s experience. Bhandari cautions that this is a factor to consider carefully before making any significant private equity investment.

At a lower level, it could be an option to join a private equity specialty firm. Many private equity professionals are drawn from top management consulting groups and Fortune 500 companies. Law firms are also recruitment grounds for private equity hiring, as legal and accounting skills are generally required to complete deals and handle transactions.

A Financial Advisor Can Help

By its nature, private equity investing is risky. It’s therefore wise to work with someone who has extensive experience with it. Bhandari counsels that anyone considering private equity investing should seek out a qualified financial advisor to help them weigh their options.

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SOURCE: Ashish Bhandari

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