Private equity is a wide sector. Those who don’t know it from up close may have the impression that it is only the biggest players who get to participate on this level. Today, the private equity sector is no longer closed to the average investor. Much has happened since the raiders of the ‘80s swept the lands and stripped businesses for their profits. In a way, private equity has simply become more civilized.

Private equity by its nature is more complex than simply buying and selling securities or fixed income products on the stock markets; but in return it holds a real thrill, and solid returns. The question is, how much of your attention does this sector deserve and are you willing to go along for the ride? Due to its nature and lack of regulations, the industry has to be classified as high risk investment, but yet again, the risk can be measured, and in a good investment proposal you will find all the relevant details to make an educated decision about the potential risk & return.

Last year, the private equity sector recorded its biggest year ever with a total transaction volume of well over 1.5 trillion pounds. This year, experts say, will be a similar year for the industry. The first question we get asked by investors is: Is the sector here to stay? Is it a new segment or is it just a bubble that will burst as soon as the global economy goes into decline? First of all, private equity is not new, but rather it is even older then public equity. We believe that the private equity market will certainly establish itself even more and become a more common part in the average household portfolio, mainly due to the mutual funds that focus on this sector, and allow access to this mystical market. Also, the IPO of The Blackstone Group, one of the world’s biggest private equity firms (N° 4 after Carlyle, KKR and Goldman Sachs) is making waves in the market and is attracting attention from investors. In that sense there is a paradox, as it seems the easiest way nowadays to be part of private equity is to buy into public companies.

However, if you are looking to invest in this market, make sure that you don’t enter into bad deals that can only go one way for you - and end in losses. On a deal to deal basis it is crucial that you pay attention to a few key details: who is the management? Can you measure their competence? What industry is the deal in? Does this industry have a future? Do the projected revenue and profit figures look feasible, modest or is someone trying to sell you the “next billion dollar business”. Chances are, if someone talks to you about mighty returns and little risk, the deal is no good and you should probably walk away from it. Also, always make sure to involve specialists in the review of a proposal – such as your accountant and your lawyer. If it sounds too good to be true it usually is…