The Difference between a Private Equity and a Private Investment Platform
The last few decades brough many changes in what private investing means. Private equity firms used to be the ones that dominated the field. But, thanks to the rise of technology, things changed. With the help of two short presentation on what a private equity platform is, and what a private investment platform is, you will be able to easily tell the differences between the two types of platforms.
What Is a Private Equity Platform? A private equity platform, also known as PE, refers to investments that are made privately in companies that are not listed on public stock exchanges. A private equity platform will often manage funds that pool capital (aggregate capital) from high-net-worth individuals, pension funds, and institutional investors. This capital is then used to invest in private companies, either acquiring financing expansion or a controlling interest. Also, a private equity platform is a company that is purchased by a PEG (private equity group), who intends to grow the said company using capital from investors. Private equity firms often operate in manners like:
Fundraising – This is when a private equity platform raises funds from accredited or institutional investors. Acquisition and management – After private equity firms acquire stakes in a private company, they can manage it so that they can improve profitability. Exit strategy – A strategic exit is realized through returns, like IPOs (initial public offerings), mergers, acquisitions, or secondary sales.
The world of investing has always been a very complicated, but still interesting one. The investment industry has always played an essential role in the global economic scheme; and it will continue to do so.
The Most Important Features of These Platforms
The exclusive access is one of the key features of PEs. These investments are often reserved only for accredited individuals or institutional investors (due to the high investment requirements). Another key feature is in the fact that PE firms play an important role when it comes to managing portfolios, and implementing strategic changes which help with enhancing value. The next one would be the long lock-in periods; because in private equity funds, investors put capital on the line for a long period of time (sometimes even 10 years), before seeing any returns. And while the last feature mentioned is true, it’s also true that PE investments usually generate substantial returns. Why? Because of all the strategic improvements and the active involvement. And last but not least, the high fees. Known as the “2 and 20” fee structure, PE funds often charge fees; 2% management fees, and 20% performance fees. Even if the comparison between the two will be very clear, remembering these features will help you understand what exactly differentiates private equity from private investment.
What Is a Private Investment Platform? A private investment platform is an alternative to crowdfunding and investment platforms. This type of platform has more technology-driven solutions that enable a range of investors access to market opportunities that are private. It connects investors with real estate projects, startups, business, but other alternative assets too. A private investment platform will use technology to make the investment process more efficient; which makes it easier to participate in private markets. It’s a great opportunity for people who are interested in investing. Many of these platforms charge different fees, and this is why it’s important to check what fees they have before your start investing. Make sure that everything clear, and that you agree to pay those fees (listing fees, management fees, performance fees). While a private investment platform can be a great opportunity, you should evaluate all of the risks before investing. But, this is not available just for a private investment platform, but everything you do really. You should do your research, and to make sure that you understand all of the Terms of Service you are agreeing to.
What Are The Most Important Features?
There are many key features that could be discussed, but this article is going to present some of the most important ones. The first one is the fact that they require lower investment minimums. They allow investments that start even from just a few thousand dollars. And this is not even the best, they also accept investors that are non-accredited, which makes the market more inclusive. You get access to a variety of assets, like those previously mentioned (real estate, startups, etc.).
And while there are some fees here too, the fees are lower compared to those of PEs. This is, again, encouraging inclusivity. It’s an option that it’s closer and more achievable to a wider audience, which is great! Some of these platforms also offer secondary markets where the investors can sell and buy shares before an official exit occurs. The overall risk is lower than with PEs; but it depends on how much you want to invest, how, what you want to achieve, and many other similar factors.
Now, What Are The Differences? It’s safe to assume that you already spotted the differences between these two types of investment platforms. But, just to make sure everything is clear, we’ll go to some of the most relevant point. After all, a little summary never hurt anyone. You will find differences in the investment type, the first one works only with accredited investors, while at the second one non-accredited investors are often accepted too. The investment minimums is one of the biggest differences, as the first type of platform has very high minimums (over $250K), and the second one’s minimum can go as low as $1K. There are, of course, differences also in the level of control and involvement. The difference is between active management (of portfolios) and passive investment. Which can lead us to the difference of liquidity, and risk levels. All of these differences were discussed, in a way or another, throughout the article; but it’s still helpful to be reminded of them.
Conclusion
Now that you know what the differences between a private equity and a private investment platform are, you can make an informed next move. Both these platforms provide you with access to private markets, but all of the differences between the two prove that they cater to totally different types of investors. Identify what kind of investor you are, and choose the correct platform for you and your investments!
