Why Investors View Private Equity Favorably
Many middle-market business owners that we meet at our business conferences are unaware of how much private equity money is available right now for investing purposes. By some estimates, equity firms have nearly $500 billion dollars available to invest. Based on historic trends, this is quite a large sum of committed capital that needs to be invested.
And because of the positive returns available to them, investors continue to flock to private equity as a sound investment vehicle. A few weeks ago, one of the largest pension funds in the U.S., The Employees Retirement System of Texas, approved a plan to commit $3.71 billion to private equity over the next five years to reach an 8% allocation target. As of July, only 2.84% of the fund was allocated to private equity.
As you can see, this represents a significant increase in the amount of money this pension fund is allocating to private equity investments. Why are they making this additional investment? Although details regarding “why” were not released, it’s pretty clear that if they didn’t expect to generate a solid return, they wouldn’t be making this hefty increase in PE investing.
In reality, PE investing may be one of the safest investment vehicles available for pension plans today. Just look at what has happened to real estate over the past four years, not to mention the wild volatility in the stock market. Since privately held, middle-market companies represent the majority of PE investments, it appears that investing in private equity funds may, in fact, be less risky than putting equity into real estate or public markets!
Keep that in mind as you consider potential acquirers of your company. Equity firms are flush with cash and need to find good targets to invest in. Since the middle market is a favorite niche for them, positioning your company to be attractive to PE firms is vital. Generational Equity holds free informational workshops around the country about how to sell to the optimal buyer at the optimal time. If you would like to attend one, click here.
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