Committed investors are inevitably drawn into the world of private equity, where investment opportunities take on a whole new level of potential.
Explore the world of private equity in Los Angeles with Christina, and see why this investment category presents the strongest investing opportunity.
What Is Private Equity?
Equity is determined by the total value of an asset or assets held by a company subtracted by debt or liabilities associated with those assets. Equity is the metric of ownership: Holding more equity in an asset or a company confers a larger degree of ownership.
Private equity, in its most technical sense, refers to an alternative asset class wherein investors can acquire large yields of equity in securities, debt, and real estate.
Usually, the operations and assets acquired by private equity firms are traded outside conventional trading nets like the New York Stock Exchange.
What Is Private Equity Investing?
The core goal of a private equity investment strategy is to acquire a sufficient amount of equity in a company or asset so as to allow executive control over it. By acquiring a sufficient majority of equity, private equity firms effectively gain ownership of the asset or company, earning an income through asset management.
Conventional securities trading on the stock market gives investors the opportunity to acquire shares of a given operation, but never enough to have a say in executive management like private equity.
Private equity opportunities are typically offered through limited partnerships: hands-on, personally curated working relationships between general partners and high net-worth individuals.
Private equity funds may or may not be registered with the Security Exchange Commission, freeing them up to make high-risk, high-reward opportunities not available through conventional trading. The high-risk, high-reward nature of private equity opportunities means that they are typically available only to accredited investors.
What Are Accredited Investors?
Accredited investors are high-net-worth individuals whose financial status qualifies them for unconventional investment opportunities like private equity. By virtue of their total wealth and demonstrably high-income earnings, accredited investors qualify as such because they have the means to make these high-risk, high-reward investments. These investors have the wealth to make the investment and take a potential loss.
In order to acquire the volume of equity required to assume control of an investment, private equity opportunities require significant amounts of capital investments. Furthermore, the level of involvement with the investment increases the potential risks faced by investors.
For these reasons, private equity opportunities are selective in their investor pools. Most will only accept accredited investors.
Financial regulators like the SEC set guidelines for financial operations that can receive investments from the general public. These guidelines are in place to protect everyday investors from potentially risky investments that are beyond their financial capability.
Nevertheless, operations outside these guidelines present high potential investments to qualified investors. Accredited investors possess the qualifications to gain access to the advantages of highly lucrative opportunities to grow their wealth.
What Are the Advantages of Private Equity?
- Better Returns
- Better Managers
- Diversified Portfolio
Any investor wants a better return. Private equity investment opportunities deliver better returns to their investors due in large part to the favorable fees and rates offered by private equity funds. Private equity regularly outpaces investments in public stocks. In the 20-year period since the 2000s, the annualized return of private equity was almost double that of public stocks.
Additionally, private equity has comparable risk levels to public investments. Private equity nets investors a better return with minimal risk — a definitive advantage over conventional investing.
Alternate investment opportunities attract more financial talent because they are more lucrative for investors and managers alike.
Joint venture formats provide managers and investors with greater opportunities to tailor fees and rates. That means managers and their investors are more likely to agree upon a rate that earns a better return for all involved.
The brightest minds in finance go into private equity because it earns them more money. In turn, your fund is managed by financial whizzes incentivized to earn you more money.
A diversified portfolio is a strong portfolio. Private equity opportunities strengthen your portfolio because they offer diversified investments in a wide range of asset classes.
Compared to private equity opportunities, conventional funds consist of a limited range of asset classes, with even more limitations on investment strategies.
Private equity funds have no such restrictions. The opportunities presented by private equity can connect investors with any asset classes acquired and managed through any number of investing strategies. Simply put, private equity provides investors access to premium opportunities for premium returns.
What Are the Best Private Equity Investment Opportunities?
There are many paths investors can take in the world of private equity. The way private equity firms create value may vary from firm to firm. Understanding different strategies used by firms
equips you with the insight to choose the ones that best suit your interests.
Here are a few of the best private equity opportunities to consider:
- LBO Firms
- Venture Capital Firms
- Real Estate Firms
Leveraged buy-outs are one of the most common core strategies private equity firms use to create value. LBOs are essentially one company buying another without requiring the upfront capital to do so. The acquiring company finances the acquisition through debt, taking on loans equal in value to that of the combined companies. The acquired company will collateralize its assets in order to sustain the buy-out.
Leveraged buy-outs endeavor to either take public companies private, create new companies by selling off portions of the acquired company, or transfer ownership of private property. In so doing, the acquiring company gains value by subsuming those assets under their management or profiting from their sale.
LBOs have grown in popularity after a precipitous drop-off in the wake of the 2008 financial crisis; as recently as 2021, LBOs have seen a resurgence. However, this approach to private equity is notoriously ruthless, and at a 90% debt to 10% equity ratio, LBO bonds are not well-regarded and rarely qualify as investment grade.
Venture Capital Firms
Whereas LBOs pursue acquisitions of existing public companies, venture capital firms buy equity in start-ups and fledgling businesses that have yet to go public. Venture capital, as its name suggests, seeks out enterprising companies or businesses that need substantial capital infusions to get their operation off the ground.
The primary obstacle start-ups face is the high financial thresholds required to get a business operating in practice. Product testing, prototyping, market research, and other early phases of building a business require capital new businesses do not possess. Venture capital firms fulfill their financial need by supplying capital in exchange for equity in the company.
If the company becomes a success, venture capital funds are extremely well-situated for strong gains; as early adopters of a commercial success, venture capital investments stand to make substantial ROIs. Alternatively, venture capital is on the hook if the start-ups fail to launch; equity in an insolvent business can severely affect your investments.
Real Estate Firms
Real estate is a robust alternative investment that is well-suited for private equity investments. High-value real estate is a strong investment. However, multi-million dollar residences, commercial real estate, and other high-value real estate assets are virtually impossible to acquire as an individual. Private equity real estate firms connect investors with equity in these high-value assets that would be inaccessible otherwise.
Private equity in real estate is doubly effective. Alternative assets like real estate keep a portfolio strong and diverse. High-value real estate has distinct advantages that make it a worthwhile investment, like high cash flow, high appreciability, and tax break opportunities.
A private equity real estate investment firm utilizes pooled investor capital to acquire and maintain these properties, returning gains made by income-earning properties and profits generated by the real estate AUM of the firm. Some funds may acquire mortgages on other homes; the property management strategies used by private equity real estate funds vary, but they all aim to earn a return on this robust class of assets.
Why Choose Private Equity in Los Angeles?
Investing in private equity opportunities is the logical next step for enterprising investors. The decision is less about whether investors should consider private equity but rather about where they should look. Where investors ought to look for the best private equity investments is a matter of determining key features that indicate high potential.
As the largest city on the West Coast, it’s safe to assume that Los Angeles’s financial ecosystem is rich in private equity investment opportunities.
Let’s examine three of Los Angeles’ most promising features that demonstrate its high potential for private equity investments.
- Commercial Hub
- Lots of Start-Ups
- Legacy of High-Value Real Estate
- Commercial Hub
Los Angeles is at the center of multiple multi-billion dollar industries, creating a business environment well-suited for private equity investments.
Hollywood is synonymous with the film and TV industry. Entertainment has become massive as media giants like Disney, Netflix, and Spectrum, expand into new markets. Los Angeles is a global nexus for entertainment, with operations at every market level participating in the industry. Add to that, the Port of Los Angeles, the largest port in North America, oversees the exchange of trillions of dollars worth of goods and services every year.
Los Angeles is a world-class commercial hub in multiple sectors. With so much capital circulating in the metropolitan area, private equity opportunities are all but guaranteed.
- Lots of Start-Ups
Los Angeles has been the city where young, aspiring people move to follow their dreams. The city has kept up pace with our evolving 21st-century world. Over the past decade, Southern California has become a world leader in the tech industry, priming the economic ecosystem with high-potential private equity investment opportunities.
The Silicon Beach phenomenon has heralded a deluge of tech companies to set up shop in Los Angeles’ hyper-competitive Westside region. This has transformed the local economy not only with the presence of big-name, high-market cap tech giants but also countless start-ups perfect for venture capital investments.
Tech has established itself as the foremost industrial sector in the modern economy. With more and more start-ups choosing Los Angeles, venture capital investment firms have an ever-increasing yield of start-up opportunities to support.
- Legacy of High-Value Real Estate
Los Angeles doesn’t just have the most high-value real estate in the United States; it’s home to the most high-value real estate in the world.
Its explosive real estate development from the turn of the century onward has established Los Angeles real estate as preeminent. From its earliest days, the Los Angeles metropolitan area was host to the world’s wealthiest real estate neighborhoods.
The legacy of Los Angeles’s reputation for premium real estate began when oil tycoons of the early 1900s first developed luxury neighborhoods to house their multi-million dollar manors. The Westside region of Los Angeles, in particular, hosted these high-value properties.
Westside Los Angeles real estate was primed for high value from the start. In addition to their affluent origins, Westside properties are peerless in their natural beauty. Neighborhoods like Beverly Hills and Santa Monica are unfailingly gorgeous.
High-value real estate in enduring regions like the Westside are a virtual guarantee of a strong ROI, making Los Angeles real estate an ideal private equity investment opportunity.
What’s So Special About Real Estate?
Private equity nets a strong return for investors. Which one suits you depends on your financial needs. For investors intrigued by a strong return and reliable stability, real estate private equity in Los Angeles is the best option.
Real estate in the Westside of Los Angeles has sustained its high value for decades, not only because of its legacy but because of unique properties inherent to real estate as an asset class that promotes stability.
These are the defining features of real estate that promote their effectiveness as private equity capital assets:
Real estate is able to hold value because of its implicit scarcity. Supply and demand is a fundamental law in economics. When demand is high and supply is low, value is high; when demand is low and supply is high, value is low. Scarcity describes a short supply of commodities.
Real estate is inherently scarce for two reasons: first, all land is finite. Whenever land is zoned, developed, and sold, the supply of land is permanently diminished.
Second, development is a costly process in both time and money that sets a slow pace for new development. With a chronic short supply of real estate, supply rarely exceeds demand, helping real estate sustain its value and safely appreciate over time.
Few asset classes give investors the opportunity to actively improve their value, like real estate. The physical structure of a property is a primary component of the asset’s value. Therefore, alterations to the property’s physical structure present the opportunity to add more value to the asset.
Everything from new tiles in the bathroom to a complete overhaul of a property will add value to a real estate asset. The opportunity for investors to take an active role in the value of their asset by virtue of its improbability is a huge advantage. Investors have control over the value of the property, which in turn makes real estate a stabler asset.
Capital infusions into real estate value add a virtually permanent baseline increase that helps sustain the value of a property. A real estate asset physically holds the value of your capital investment. As a physical structure, the infusion of capital into property becomes integrated into value in the long term, especially for large projects.
Investments into a property’s electrical wiring, septic system, and other foundational components of the property integrate the capital spent on these projects into the real estate asset’s total value. They are critical to the structure of the property and endure as a permanent feature of it. The fixity of real estate investments means that capital infusions made into property are there to stay.
Location makes all the difference in the value of real estate assets. A multifamily home located on sunny Santa Monica beach will excel compared to a luxury home in a less popular location.
The influence of location on a property means that investors gain more insight into the viability of a given real estate asset based on where it is located. Choosing historically strong real estate markets, like the Westside of Los Angeles, provides a stronger guarantee that the location will deliver a better return.
Invest and Grow With Christina
Private equity is the way to go for capable investors, and private equity in real estate delivers on the strength and stability of an asset. To get the best possible return on your private equity investments in real estate, choose a firm backed by an extensive network and unparalleled expertise.
Christina has thrived in the Westside with over forty years of experience. We have the proven track record to deliver on your investment.
Get started with our team today and gain the advantages of private equity in your portfolio tomorrow.