For Investors
Contents:
Key Takeaways
- Private funds that are not traded on public securities markets are referred to as private funds
- Hedge funds, venture capital funds, and private real estate funds are a few examples
- Compared to public funds, private funds have the potential to provide better returns and/or more enticing payouts
What are private funds?
To understand what private funds are, let us go back to first principles by understanding what a fund is.
A fund is simply money pooled together from a group of investors who has interest in achieving a common investment objective or outcome.
Think mutual funds or exchange traded funds (ETFs).
Now for private funds. What are they?
Put simply, they are pools of capital used to invest in private companies that exist outside the public markets.
Most commonly, private funds are associated with private equity funds, venture capital funds, and hedge funds (which are currently not available here in Malaysia).
As to what makes them an attractive investment option, this is because they provide investors with the ability to diversify their portfolios—away from more traditional asset classes like stocks and bonds.
But that is not all. Private funds also offer a beneficial addition to a well-managed portfolio due to the following reasons:
Why invest in private funds?
Higher Returns
Private funds offer the potential for high returns. Because the funds are managed by expert fund managers known as general partners (GPs), you can tap into the GPs art in identifying promising companies to invest in, improve them, and potentially sell them for a profit.
Expertise
By leveraging on GPs expertise across the investment lifecycle from origination and sourcing, to deal execution and value creation, you get the chance to gain capital appreciation, as well as mitigate risk in volatile market conditions.
Diversification
In today’s global marketplace, investors can no longer rely on simple strategies weighted heavily towards stocks to produce reliable returns. Investing in private funds provides an additional layer of risk management preventing investors from being overly concentrated in a specific type of asset.
Key considerations for private funds’ investors
High Costs
Private funds often need an initial commitment ranging from hundreds of thousands to millions of dollars, making them unavailable to anyone but institutional investors and the extremely rich.
However, KLDX democratises private fund investing via tokenisation by allowing investors to purchase offerings for as little as RM1,000.
To start investing in private funds with KLDX, start here
