How to Invest in Private Equity

How to Invest in Private Equity

Private equity is a way for individual businesses with high growth potential to expand and become more profitable. Because private equity firms typically set their minimum investment at $25 million or more, private equity investments have traditionally been out of reach to the average investor. However, there are a few investment vehicles that smaller investors can use to diversify their portfolios with private equity investments.[1] X Research source

Method 1 of 3:
Buying Exchange-Traded Fund (ETF) Shares

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1
Open a brokerage account if you don't already have one. ETF shares are traded just like stocks. Using an online broker is the easiest way to buy ETF shares. [2] X Trustworthy Source Financial Industry Regulatory Agency Non-governmental organization responsible for regulating brokerage firms and exchange markets Go to source If you don't already have a brokerage account, you may want to research ETFs before you settle on a broker. That way you can make sure you choose a broker who has shares available in the ETF you're interested in. Some smaller brokers may have limited ETF offerings.[3] X Research source With most online brokers, you can open and fund an account in just a few minutes. You'll need to provide your Social Security or other tax ID number and government-issued identification, such as a driver's license or a passport. Most applications also will ask for employment and financial information, as well as a summary of your investment goals.
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2
Compare ETFs available through your broker. Your broker will have different ETFs available. Each ETF tracks a different index. To compare, look at what index the ETF tracks, how the fund is constructed, and how long it's been established. [4] X Research source Some ETF creators have invented their own indexes that track a specific segment of the stock market. If you're a beginning investor, stick with an ETF that tracks an established index, such as the S&P 500. Review each ETF's expense ratio to determine how much the investment will cost you. Commissions aren't included in the expense ratio as they vary greatly among brokers. You can get this information from your brokerage firm.
Image titled Become a Concierge Step 5
3
Place an order for shares online. For most online brokers, you'll place an order for ETF shares using the same form you would use to place orders for shares of stock. Log into your account and look for a "trade" option to get started. [5] X Research source Typically you'll identify your account and then enter the ticker symbol of the ETF you want and the number of shares of that ETF you want to purchase. With many online brokers, you can get more information about the ETF directly from the trade screen. However, this information will likely be limited to a quote or brief summary. Research more thoroughly before you get to this point.
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4
Check your order before you submit it to your broker. Once you place your order, you'll typically be taken to a screen that allows you to verify that the information you've submitted is correct. Especially if you're placing your order using a mobile app, make sure you've entered the information correctly to get the ETF and number of shares you want. [6] X Research source Most online brokers will also send you an email confirmation of your order. If you notice a mistake on your confirmation, contact your online broker through their customer service number to make any corrections.
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5
Check your ETF's performance periodically. ETFs are meant to be longer-term investments, so you don't need to check it every day, or even every week, to see how it's doing. However, it's a good idea to check at least once a quarter. [7] X Research source If your investment is losing money, look at the overall market and read financial reports and articles about the index your ETF is tracking. These can give you more information on whether you should stick with the ETF over the long term, or cut your losses and trade your shares.
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Method 2 of 3:
Investing in a Fund of Funds

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1
Review your personal investment goals. A fund of funds (FOF) gives you more diversity than a traditional mutual fund. You also get the benefit of multiple money managers to protect your investment decisions. However, different FOFs have different levels of risk, and may not be in line with your investment strategy. [8] X Research source As with any investment, higher returns typically entail higher risks. While you typically only want to have a small portion of your portfolio (2 to 5 percent) in FOFs, invest less if the risk is higher. FOFs generally are intended to be longer-term investment vehicles. If you are a short-term investor, you may not realize enough gains to overcome your costs in management and performance fees.
Image titled Become a Real Estate Appraiser Step 2
2
Choose a fund broker. While you may already have an investment account with an online broker, you may want to use a different broker to invest in an FOF. You may be able to save some money in fees if you buy directly from the company that created the fund. [9] X Research source Some brokers have no account minimum, while others require you to make a minimum investment of $500 to $1,000. Many firms that create FOFs offer shares in those funds with no transaction fees. If you purchased using your investment account with another online broker, you'd likely have to pay transaction fees for each purpose.
Image titled Account for Debt Forgiveness Step 9
3
Evaluate cost and performance carefully. When you buy FOF shares, you pay two tiers of fees. There will be fees associated with the FOF itself, as well as the fees associated with each of the funds in that FOF. [10] X Research source Venture-capital private-equity FOFs are more likely to be worth the cost than other types of FOFs. They also typically offer more diversification than other FOFs by including more individual funds. With FOFs, a greater diversity of funds within the FOF typically results in better returns for investors.
Image titled Account for Debt Forgiveness Step 10
4
Choose a fund from your broker's offerings. Once you've identified the FOF you want, you can purchase shares from your broker the same way you would purchase shares in an individual mutual fund. [11] X Research source Many online brokers also have "supermarkets" where you can purchase shares in funds provided by a different broker. If you use a supermarket, pay close attention to fees. Your online broker may charge additional transaction fees or commissions on top of the mutual fund fees (which are already higher for FOFs). If the transaction fees are higher, consider opening an account with the fund provider and investing directly.
Image titled Account for Stock Based Compensation Step 12
5
Rebalance your funds each year. The purpose of having mutual funds, including FOFs, in your portfolio is to diversity your holdings. Each year, evaluate the performance of the funds you hold and trade shares of underperforming funds. [12] X Research source Particularly if you have several mutual funds or FOFs in your portfolio, you may find that some outperform others each year. Depending on the amount you have invested, this may upset your diversification strategy.
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Method 3 of 3:
Using a Special Purpose Acquisition Company (SPAC)

Image titled Achieve Tax Relief from IRS Step 7
1
Research SPACs carefully before investing. A SPAC is essentially a shell company that does not yet have any assets. SPACs are created to merge or purchase one or more other companies. The potential value of an SPAC depends on the experience and reputations of the people who organized the SPAC. [13] X Research source Look up the individuals in the management team and review their backgrounds. Collectively, they should all have records of success in identifying growing businesses and taking those businesses public. If the SPAC is focused on a particular industry, such as the tech industry, managers should have experience working with businesses in that particular industry.
Image titled Buy a Business With Owner Financing Step 7
2
Review your broker's eligibility requirements for IPOs. If you decide to invest in an SPAC, you'll typically get the best price for shares if you get in on the ground floor. Each brokerage firm has asset, trade, and relationship criteria you must meet to be eligible to participate in an IPO. [14] X Research source Typically, you must have at least $100,000 in assets to participate in IPOs. Some investment banks that sponsor IPOs require participating investors to have as much as $500,000 in assets. Apart from sponsor requirements, brokerage firms may require you to have a specific type of account, or have completed a certain number of trades in a 12-month period. Your broker also likely requires you to have a minimum amount of cash in your account. IPO shares must be bought with cash or available credit.[15] X Research source
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3
Sign up for IPO alerts with your broker. If you meet the eligibility criteria for the IPO, find out if your broker has IPO alerts. These alerts will let you know when the first shares have become available. Your broker also likely has a calendar you can use to plan your investments if you want to participate in an upcoming IPO. [16] X Research source If you've researched a particular SPAC that you're interested in, call your broker's customer service number and find out if your broker is participating in the SPAC's IPO. If they aren't, you may want to open an account with a different broker so you can participate. You can also wait and purchase shares on the secondary market a few weeks after the IPO.
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4
Settle your purchase of IPO shares. Many IPOs are over-subscribed. Once shares are allocated, your broker will send you a notification of the number of shares you've been allocated. The cash will be withdrawn from your account to complete the purchase. [17] X Research source Your cash will be held in escrow by the SPAC. If the SPAC does not acquire a business within the specified time period (typically 36 months or less), your money will be returned plus interest.
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5
Buy shares on the common market. If you are not eligible to get in on the IPO, you can still get shares in the SPAC a couple of weeks after IPO shares are allocated. Common shares are typically sold at a discount from the cash held in escrow. [18] X Research source The price of shares on the common market depends on whether the SPAC has announced which company it intends to acquire. If it hasn't announced a target for acquisition yet, shares typically will have a lower price because of the uncertainty. After the acquisition target is announced, the price of shares in the SPAC will depend on the reputation and financial health of that company.
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6
Approve the business combination agreement. If you own shares in an SPAC, you must vote on any business combination agreement announced by the SPAC. The SPAC must get the approval of at least 60 percent of all shareholders. [19] X Research source If you intend to vote against the agreement, it typically is in your best interests to sell your shares on the secondary market. While you are entitled to a pro rata return of your assets, you'll likely get a better return on your investment by selling your shares.
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Method 1 of 3:
Buying Exchange-Traded Fund (ETF) Shares

Image titled Set Up a Merchant Account Step 11
1
Open a brokerage account if you don't already have one. ETF shares are traded just like stocks. Using an online broker is the easiest way to buy ETF shares. [2] X Trustworthy Source Financial Industry Regulatory Agency Non-governmental organization responsible for regulating brokerage firms and exchange markets Go to source If you don't already have a brokerage account, you may want to research ETFs before you settle on a broker. That way you can make sure you choose a broker who has shares available in the ETF you're interested in. Some smaller brokers may have limited ETF offerings.[3] X Research source With most online brokers, you can open and fund an account in just a few minutes. You'll need to provide your Social Security or other tax ID number and government-issued identification, such as a driver's license or a passport. Most applications also will ask for employment and financial information, as well as a summary of your investment goals.
Image titled Overcome a Fear of Online Dating Step 7
2
Compare ETFs available through your broker. Your broker will have different ETFs available. Each ETF tracks a different index. To compare, look at what index the ETF tracks, how the fund is constructed, and how long it's been established. [4] X Research source Some ETF creators have invented their own indexes that track a specific segment of the stock market. If you're a beginning investor, stick with an ETF that tracks an established index, such as the S&P 500. Review each ETF's expense ratio to determine how much the investment will cost you. Commissions aren't included in the expense ratio as they vary greatly among brokers. You can get this information from your brokerage firm.
Image titled Become a Concierge Step 5
3
Place an order for shares online. For most online brokers, you'll place an order for ETF shares using the same form you would use to place orders for shares of stock. Log into your account and look for a "trade" option to get started. [5] X Research source Typically you'll identify your account and then enter the ticker symbol of the ETF you want and the number of shares of that ETF you want to purchase. With many online brokers, you can get more information about the ETF directly from the trade screen. However, this information will likely be limited to a quote or brief summary. Research more thoroughly before you get to this point.
Image titled Become a Credit Repair Specialist Step 6
4
Check your order before you submit it to your broker. Once you place your order, you'll typically be taken to a screen that allows you to verify that the information you've submitted is correct. Especially if you're placing your order using a mobile app, make sure you've entered the information correctly to get the ETF and number of shares you want. [6] X Research source Most online brokers will also send you an email confirmation of your order. If you notice a mistake on your confirmation, contact your online broker through their customer service number to make any corrections.
Image titled Ask Customers for Reviews Step 12
5
Check your ETF's performance periodically. ETFs are meant to be longer-term investments, so you don't need to check it every day, or even every week, to see how it's doing. However, it's a good idea to check at least once a quarter. [7] X Research source If your investment is losing money, look at the overall market and read financial reports and articles about the index your ETF is tracking. These can give you more information on whether you should stick with the ETF over the long term, or cut your losses and trade your shares.
Advertisement

Method 2 of 3:
Investing in a Fund of Funds

Image titled Become a Medicare Auditor Step 8
1
Review your personal investment goals. A fund of funds (FOF) gives you more diversity than a traditional mutual fund. You also get the benefit of multiple money managers to protect your investment decisions. However, different FOFs have different levels of risk, and may not be in line with your investment strategy. [8] X Research source As with any investment, higher returns typically entail higher risks. While you typically only want to have a small portion of your portfolio (2 to 5 percent) in FOFs, invest less if the risk is higher. FOFs generally are intended to be longer-term investment vehicles. If you are a short-term investor, you may not realize enough gains to overcome your costs in management and performance fees.
Image titled Become a Real Estate Appraiser Step 2
2
Choose a fund broker. While you may already have an investment account with an online broker, you may want to use a different broker to invest in an FOF. You may be able to save some money in fees if you buy directly from the company that created the fund. [9] X Research source Some brokers have no account minimum, while others require you to make a minimum investment of $500 to $1,000. Many firms that create FOFs offer shares in those funds with no transaction fees. If you purchased using your investment account with another online broker, you'd likely have to pay transaction fees for each purpose.
Image titled Account for Debt Forgiveness Step 9
3
Evaluate cost and performance carefully. When you buy FOF shares, you pay two tiers of fees. There will be fees associated with the FOF itself, as well as the fees associated with each of the funds in that FOF. [10] X Research source Venture-capital private-equity FOFs are more likely to be worth the cost than other types of FOFs. They also typically offer more diversification than other FOFs by including more individual funds. With FOFs, a greater diversity of funds within the FOF typically results in better returns for investors.
Image titled Account for Debt Forgiveness Step 10
4
Choose a fund from your broker's offerings. Once you've identified the FOF you want, you can purchase shares from your broker the same way you would purchase shares in an individual mutual fund. [11] X Research source Many online brokers also have "supermarkets" where you can purchase shares in funds provided by a different broker. If you use a supermarket, pay close attention to fees. Your online broker may charge additional transaction fees or commissions on top of the mutual fund fees (which are already higher for FOFs). If the transaction fees are higher, consider opening an account with the fund provider and investing directly.
Image titled Account for Stock Based Compensation Step 12
5
Rebalance your funds each year. The purpose of having mutual funds, including FOFs, in your portfolio is to diversity your holdings. Each year, evaluate the performance of the funds you hold and trade shares of underperforming funds. [12] X Research source Particularly if you have several mutual funds or FOFs in your portfolio, you may find that some outperform others each year. Depending on the amount you have invested, this may upset your diversification strategy.
Advertisement

Method 3 of 3:
Using a Special Purpose Acquisition Company (SPAC)

Image titled Achieve Tax Relief from IRS Step 7
1
Research SPACs carefully before investing. A SPAC is essentially a shell company that does not yet have any assets. SPACs are created to merge or purchase one or more other companies. The potential value of an SPAC depends on the experience and reputations of the people who organized the SPAC. [13] X Research source Look up the individuals in the management team and review their backgrounds. Collectively, they should all have records of success in identifying growing businesses and taking those businesses public. If the SPAC is focused on a particular industry, such as the tech industry, managers should have experience working with businesses in that particular industry.
Image titled Buy a Business With Owner Financing Step 7
2
Review your broker's eligibility requirements for IPOs. If you decide to invest in an SPAC, you'll typically get the best price for shares if you get in on the ground floor. Each brokerage firm has asset, trade, and relationship criteria you must meet to be eligible to participate in an IPO. [14] X Research source Typically, you must have at least $100,000 in assets to participate in IPOs. Some investment banks that sponsor IPOs require participating investors to have as much as $500,000 in assets. Apart from sponsor requirements, brokerage firms may require you to have a specific type of account, or have completed a certain number of trades in a 12-month period. Your broker also likely requires you to have a minimum amount of cash in your account. IPO shares must be bought with cash or available credit.[15] X Research source
Image titled Grow Your Online Business with Amazon Step 7
3
Sign up for IPO alerts with your broker. If you meet the eligibility criteria for the IPO, find out if your broker has IPO alerts. These alerts will let you know when the first shares have become available. Your broker also likely has a calendar you can use to plan your investments if you want to participate in an upcoming IPO. [16] X Research source If you've researched a particular SPAC that you're interested in, call your broker's customer service number and find out if your broker is participating in the SPAC's IPO. If they aren't, you may want to open an account with a different broker so you can participate. You can also wait and purchase shares on the secondary market a few weeks after the IPO.
Image titled Make ACH Payments Step 12
4
Settle your purchase of IPO shares. Many IPOs are over-subscribed. Once shares are allocated, your broker will send you a notification of the number of shares you've been allocated. The cash will be withdrawn from your account to complete the purchase. [17] X Research source Your cash will be held in escrow by the SPAC. If the SPAC does not acquire a business within the specified time period (typically 36 months or less), your money will be returned plus interest.
Image titled Buy Bank Owned Commercial Property Step 16
5
Buy shares on the common market. If you are not eligible to get in on the IPO, you can still get shares in the SPAC a couple of weeks after IPO shares are allocated. Common shares are typically sold at a discount from the cash held in escrow. [18] X Research source The price of shares on the common market depends on whether the SPAC has announced which company it intends to acquire. If it hasn't announced a target for acquisition yet, shares typically will have a lower price because of the uncertainty. After the acquisition target is announced, the price of shares in the SPAC will depend on the reputation and financial health of that company.
Image titled Buy a Radio Station Step 18
6
Approve the business combination agreement. If you own shares in an SPAC, you must vote on any business combination agreement announced by the SPAC. The SPAC must get the approval of at least 60 percent of all shareholders. [19] X Research source If you intend to vote against the agreement, it typically is in your best interests to sell your shares on the secondary market. While you are entitled to a pro rata return of your assets, you'll likely get a better return on your investment by selling your shares.
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