• Disadvantages involved in Private Equity Fund Investment

    There are some disadvantages involved in Private Equity fund investment. They are mainly

    • Private equity fund investments are very much liquid in nature and the investors can’t sell or buy their investment whenever they want.
    • It requires a very high initial investment amount which only the very high net worth investors can afford.
    • It requires a very high long term commitment by the investors. Investors, who can afford to invest a high amount of capital for long term can only invests in the private equity funds. It actually rules out almost all of the small investors from the list.
    • As the private equity funds invest in only startup companies and privately held small companies, the risk of losing money is very high.
    • From invested company’s point of view, the private equity fund managers sometimes interfere in the normal business operations of the company.
    • Because of complexity involved in analyzing the company and managing the company as well as fund, the management cost and the transaction cost are very higher compared to other funds.
    • There is no proper way of calculating the NAV of the private equity fund as calculating the valuation of the invested privately held company is very tough.
    • Normally the difference in the rate of return between the best and worst performing private equity stays very high. This also confirms the high risks involved in private equity investment.

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