What Is A Private Equity Fund?


In today’s world, many of the goods, services, and products we see every day are from private equity-backed companies. Private equity is a foundational concept for anyone interested in investing, whether they are investing in the traditional market or commercial real estate.

It is an alternative investment class where money (capital) is invested into a fund that goes toward directly investing in companies or properties. Private equity firms use this type of investment with the goal of increasing the asset’s value over time and eventually selling it at a profit. These firms use capital raised from limited partners, including the creation of private equity funds, to invest in promising properties or other assets.

These are pools of capital meant for investment in assets, such as properties, that present an opportunity for a high rate of return. They tend to come with a fixed investment horizon, typically ranging from four to seven years. The firm then hopes to make a profit by using an exit strategy to sell the asset.

Types of Private Equity Funding


Firms raise capital from accredited and institutional investors for funds to invest in different types of assets. Some of the most popular types include distressed funding, leveraged buyouts, venture capital, fund of funds, and real estate.

Money in distressed funding is invested into troubled companies with underperforming business units or assets. The goal behind this type is to turn the companies around by making the necessary changes to management or operations. Alternatively, private equity firms may choose to make a sale of that company’s assets for profit instead.

Leveraged buyouts are one of the most popular forms of private equity funding. These involve buying out a company completely with the intention of improving its business and financial health. The firms use a variety of strategies to improve the company, from slashing employee count to replacing management teams. The firm then resells the business for profit to another interested party or by conducting an initial public offering (IPO).

Venture capital refers to when investors use funding to provide capital to entrepreneurs. This can include seed financing, early-stage financing, and Series A financing. Typically, investors provide financing to those companies or small businesses that show long-term growth potential.

Fund of funds is a type that focuses on investing in other funds, usually of the mutual or hedge variety. This type offers a backdoor entry to investors who cannot normally afford the minimum capital requirements needed for those types of investments.

Real estate private equity are funds used to invest in commercial real estate properties or real estate investment trusts (REITs). The difference between the two lies in how each is applied. A REIT is typically a corporation, trust, or association that invests directly in income-producing real estate. It may also be traded like a stock. Meanwhile, a real estate fund is a type of mutual fund primarily focused on investing in securities offered by public real estate companies. Real estate private equity saw a surge following the 2008 financial crisis.

In many cases, there are long holding periods in order to ensure a turnaround for distressed companies or to allow for liquidity events such as IPOs or sale to a public company. The amount of time an investor or firm holds an asset largely depends on the asset itself and the strategy the investor or firm chooses to use.

Understanding Private Equity Real Estate


Private equity real estate funds allow high-net-worth individuals and institutions to invest in equity and debt holdings related to real estate assets. Usually, general partners invest in a variety of property types in different locations, ranging from new developments and raw land to complete redevelopments of existing properties. In some cases, investors may pursue a core or core-plus strategy, where the property needs little to no redevelopment. These kinds of properties have the potential to offer predictable cash flow.

Within these types of real estate investments, capital is commonly pooled and structured as limited partnerships, limited liability companies, S-corps, C-corps, collective investment trusts, private REITs, and other structures.

Investing in private equity normally requires an investor with a long-term outlook and significant upfront commitment, though this depends on the offering. Funds created for individual investors generally require the investment to be funded at the time of signing the investment agreement, but funds created for institutional investors require a capital commitment. This means upon signing the agreement, the capital is drawn down as suitable investments are made. If no investments are made during the period specified in the investment agreement, nothing can be drawn from the commitment. In other words, the institutional investor is not required to immediately fund the investment, but commits to potentially funding the acquisition of an asset.

Types of Private Equity Real Estate Investments

There are a variety of private equity real estate investments available. These can include office buildings, flex-industrial properties, and multi-family apartments. More niche property investments include properties such as hotels, self-storage, medical offices, or senior housing.

Despite less financial flexibility and liquidity when compared to other investments, this type may provide high potential levels of income with strong capital appreciation. Annual returns for core and core-plus strategies tend to average somewhere in the 4-13% range. Returns for value-add or opportunistic strategies may be even higher. Though not guaranteed, many investors see this as an advantage to this type of investment.


Who Might Invest?


Private equity funds may be out of reach for many investors because they tend to require a substantial minimum contribution. For example, some of these funds allow you to buy in at as little as $25,000. Others may have capital contribution requirements that reach up to the millions.

As a result, many investors are those who are highly experienced, accredited investors, or institutional investors. They may have a longer-term outlook or financial plan. There are also family offices comprised of professionals specifically hired to manage the wealth of families, such as those who have come into an inheritance or groups of high-net-worth individuals.

Institutions may also choose to invest in private equity funds. In fact, they tend to be the most prominent investors in private equity real estate. Institutional investors include hedge, pension and mutual funds, endowments, banks, and insurance companies. Select third parties, such as asset managers, may also invest on behalf of institutions.

FAQ’s


What is the difference between a hedge fund and a private equity fund?

Hedge funds are a type of alternative investment that uses pooled capital to earn returns for its investors. Similarly, private equity funds also use pooled capital, but choose to focus on companies, properties, and larger assets to bring returns to their investors. This is especially true in commercial real estate, where some private equity firms specialize solely in commercial properties.


How is a private equity fund structured?

Private equity real estate funds are commonly pooled and structured as limited partnerships (LPs), limited liability companies (LLCs), S-corps, C-corps, collective investment trusts, private REITs, or other legal structures. It largely depends on the institution and the agreement between the investor and the private equity fund holder. Investors benefit from reading the terms before agreeing to adding their capital to the pool, so that they might better understand the expectations and potential returns.

Invest With Us


Avistone is a commercial real estate investment firm that focuses on the acquisition and operation of multi-tenant flex and industrial properties. We also focus on the acquisition and asset management of hotel properties nationwide.

Accredited investors have the opportunity to purchase equity shares with the potential to receive monthly cash distributions and capital appreciation. To provide the best outcome for our investors, we acquire properties located in dynamic markets with proven demand, strong economic indicators, and historically high occupancy rates.

Contact us today to learn more about our current offerings.

© 2024 Avistone, LLC. All rights reserved.

*IMPORTANT DISCLOSURES:

Communications from Avistone, LLC or its affiliates (referred to together as "Avistone"), whether it is transmitted through its website, social media, email, text or any other marketing platform used by Avistone (collectively termed "Avistone Communications") must not be taken as recommendations or endorsements to purchase, sell, or hold any securities. Furthermore, Avistone Communications should not be considered as advice related to investment, taxation, finance, accounting, legal matters, regulations, or compliance.

To gain a comprehensive understanding of the risks associated with the securities mentioned herein or in Avistone Communications, it is essential to review them with related private placement memorandums and other offering documents. Participating in private placements requires substantial financial commitment and the ability to tolerate a complete loss of the investment. Avistone Communications provide a preliminary overview and insights into Avistone sponsored investments, and are intended for initial reference. However, they do not encompass all relevant information and should not be considered a complete representation. The information presented is subject to further updates without notice and qualification as provided in the relevant offering materials. It's important to note that Avistone is not registered as a broker-dealer, and Avistone does not make any claims or warranties regarding the legality of investments in Avistone sponsored investments ("Avistone Investments").

Investing in alternative securities or real property carries inherent risks, are illiquid, may depreciate in value, and is limited to accredited investors under the Securities Act of 1933. These risks include market fluctuations, credit vulnerabilities, interest rate exposure, and potential loss of capital. Before investing, all prospective investors must conduct an independent assessment, evaluate fees, uncertainties, and risks outlined in offering materials, and consult with investment, tax, financial, and legal advisors. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or endorsed any Avistone Investment, or authenticated the accuracy or exhaustiveness of any information or materials furnished via Avistone Communications.

The information in Avistone Communications is not a recommendation, investment advice, or a solicitation to buy, sell, or hold any security or investment strategy. It is not provided in a fiduciary capacity and does not consider an individual investor's specific goals or circumstances. The information reflects Avistone's market interpretation, and the success of Avistone Investments is not guaranteed. Investment decisions should be based on individual goals, in consultation with financial professionals. Past performance does not predict future outcomes. All research and supplementary information in Avistone Communications are for informational purposes only, and Avistone assumes no responsibility for inaccuracies or omissions in the content or linked resources.

The financial and investment benchmarks, including forecasted internal rate of returns (IRR), total return, distribution yields, multiples, and investment holding period returns, displayed on Avistone Communications are projections, subject to change and should not be considered as actual investment outcomes or guarantees of future results. These benchmarks always come with inherent risks, such as market volatility, operational uncertainties, and limited liquidity. Additionally, financial metrics and calculations within Avistone Communications have not undergone independent verification or audit and may differ from actual financial metrics for any investment. The investment data provided is sourced from entities believed to be reliable, but no assertions or warranties are made regarding its accuracy or comprehensiveness, and Avistone assumes no responsibility for any inaccuracies.

Avistone’s historical track record in the industrial sector showing past performance is no guarantee of future results. The performance of Avistone’s prior industrial projects have not been audited by any third party. Not all investors received the same returns due primarily to investments in different property offerings. Full-Cycle Track Record average metrics are based on weighted averages that treat investment dollars equally and are calculated after summing the results of all Avistone full-cycle industrial investments, weighted by each investment's respective capitalization amount for each Full Cycle Investment.

Materials or data emanating from third-party media external to this domain or Avistone Communications may address or refer to Avistone or correspond to information contained herein, however, Avistone does not extend endorsement or accountability for such content. Hyperlinks to external sites or reproduction of content from third-party sources do not denote an endorsement or approval by Avistone of the content thus linked or reproduced.