How can a private investor invest in private equity?
A private investor can invest in private equity either through a fund (for example a European Long-Term Investment Fund, ELTIF, or equivalent vehicles depending on the country), or directly, by taking a stake in a company, alone or with other investors. Minimum amounts, access conditions and taxation vary by vehicle and country of residence.
| Through a fund | Direct | |
|---|---|---|
| Diversification | Several companies in one fund | One company per investment |
| Selection | Delegated to a management company | Made by the investor or the lead investor |
| Fees | Management fees and performance fee | Legal and structuring costs, sometimes a lead investor fee |
| Minimum ticket | Varies, from a few thousand euros to much more | Often high |
| Risk | High | Very high (concentrated on one company) |
What are the risks and liquidity of private equity?
Private equity carries a risk of partial or total loss of capital, because an unlisted company can fail. It is also highly illiquid: money is generally locked up for several years (often eight to ten years for a fund), with no simple way to sell before the end. A manager's past performance is not a reliable indicator of future results.
Other points to know: capital calls (in some funds, committed money is paid in gradually, when the manager requests it), valuation (the value of an unlisted company is an estimate, not a market price) and the J-curve (in the first years, a fund's value often falls because of fees, before any gains appear).
Direct private equity or through a fund: what are the differences?
A fund brings diversification and professional management, at the cost of higher fees and limited control over choices. Direct investment offers more control and visibility, but concentrates risk on a single company and requires the ability to analyse a deal: accounts, market, management team, shareholders' agreement.
When investing directly, read the shareholders' agreement carefully: information rights, exit clauses (liquidity, buy-back, tag-along), protection against dilution in later funding rounds.