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.