The term ‘private equity’ is one most business professionals are familiar with. It describes investment partnerships in which companies are bought and managed before being sold. These investments are typically operated on behalf of outside investors. If you are interested in partnering with a private equity firm, there are some questions you need to ask them first. This post’s intention is to tell you what these are. Knowing what to ask will make your first interview with a private equity firm considerably easier, allowing you to focus on their answers rather than formulating questions on the spot.
1. How Many Funds Do You Operate?
One of the first questions you should ask a private equity firm is “How many funds do you operate?” You need to be confident that the firm you’re hiring is going to devote their time to ensuring you make returns on your investments. One private equity firm in Minneapolis makes clear on their website that they have a 20+ year record of ensuring clients’ investments receive long-term, stable growth, clearly showing that they give undivided attention to their clients. The firm you hire needs to be able to offer you these things. Another good way to find out if a firm is worth hiring is to read their reviews. An organization’s reviews will give you a clear idea of what their service is like. Most equity firms have testimonials published on their websites, too. Customer testimonials can be very insightful.
If the firm that you are going to hire operates lots of different funds, ensure that they have a sizable amount of employees working under them. Operating lots of funds is irrelevant if the equity firm has many employees because there will always be people working on your case. Make sure that you ask about employee numbers prior to making any arrangements or agreements, especially if the firm does manage lots of different funds for other clients and has a large portfolio. Remember: You can also view your chosen equity firm’s portfolio on their website or by request. Do this so that when you attend your appointment with them, you are able to ask more pointed questions about things you have learned about them, i.e., “What made you partner with X firm?” or “How much have you earned for Y firm?”
2. How Much Experience Do You Have?
Under no circumstances should you ever hire a private equity firm that’s inexperienced. You need to make sure that your money is secure. A good way to do this is to hire a firm with lots of experience, ideally, that’s been open for a long time. You should be able to find out what year a firm opened by visiting their website. However, age alone does not indicate experience. To gauge a firm’s experience, you need to ask them which companies they’ve worked with in the past and ask to see their portfolio if it is not publicly available on their website.
Reviews, mentioned above, can also help you to get a better understanding of a particular firm’s level of experience. Customer testimonials were referenced in the previous section. Something to know is that businesses will often only allow positive reviews in their testimonials’ section. If you suspect the reviews published on your chosen firm’s website are not genuine or are exaggerated, question them about this in person. You could even ask the firm to put you in touch with clients they have worked with before. Some clients are more than happy to provide reviews themselves, over the phone.
3. What Kind of Assets Does Your Company Invest In?
On your chosen private equity firm’s website, they should make clear what assets they invest in. However, it’s still a good idea to get an explanation in person. The average person has no investment knowledge and therefore the information that’s given by equity firms on their websites is basically useless. Getting an explanation in person will also give you an opportunity to learn more about your chosen firm, their history, and the organizations that they are partnered with or have worked with in the past.
If you find an equity firm that invests in assets that have absolutely nothing to do with the assets you want to invest then, it may still be worth getting in touch with them and asking if they would be willing to partner with you. Bear in mind, that some equity firms are not that interested in diversification and will therefore turn you down. Do not feel disheartened if this happens to you. It may be a good idea to bring up diversification at your appointment with them rather than via e-mail or over the phone. People tend to be a lot more flexible when you are talking to them in person as opposed to when you are speaking to them digitally and they are not in front of you.
4. What’s Your Investment Strategy?
Finally, and perhaps most importantly, you need to ask the company that you want to work with what their investment strategy is going to be. They need to be able to lay out every single step of their investment strategy, so you know how your money is going to be handled. If the company that you are planning on hiring is not able to do this on the spot, give them some time and ask them to come back. Expecting them to be able to come up with an investment strategy on the spot is not a good idea and is a lot to ask. That said, some firms will be prepared and will have an investment strategy already prepared.
If the investment strategy you’re presented with does not sound good to you, do not be shy. Tell them outright you don’t like it and if you’re going to work together, it needs to change. Pinpoint and highlight areas you think need particular attention.
Working with private equity firms can be a great way to earn money. However, to generate income you need to find the best firm you can. Hopefully, the questions outlined here will help you to do that. Be sure to ask all of the questions specified in this article (and any others that you have).