Private equity investing always intrigued me — the prospect of backing ambitious entrepreneurs, optimizing businesses behind the scenes, and generating outsized returns captured my imagination early in my finance career.
Over the past decade, I’ve built a disciplined, hands‑on approach to investing in private equity (PE). In this article, I’ll walk you through why private equity matters, who can access it, strategies I’ve employed, and practical steps to start investing — drawing directly from my own experience.
Read Also: What Is a Public Equity Fund?
Why Private Equity?
The Allure of Private Markets
Public markets are highly liquid, highly efficient — and often overpriced. Private markets, by contrast, offer:
- Information asymmetry: With less analyst coverage, diligent research can uncover mispriced companies.
- Operational influence: As an investor, I’ve had meaningful input on strategic decisions — something rarely possible in public equities.
- Longer time horizon: A five-to-ten-year investment window provides flexibility to drive value.
PE Performance and Return Potential
Historically, private equity has delivered returns in excess of public market benchmarks. In my first PE fund in 2014, we achieved a net internal rate of return (IRR) of 18%, significantly outperforming the S&P 500 during the same period. That track record reinforced my conviction that, with the right deal structure and management team, the payoff can be worth the illiquidity.
Who Can Invest in Private Equity?
Accredited & Qualified Investors
Private equity is typically limited to accredited investors (e.g., net worth over $1 million or annual income above certain thresholds) or qualified purchasers. Early in my journey, I met these criteria and began networking through my firm and alumni connections.
High‑Net‑Worth Individuals (HNWIs) & Family Offices
Family offices and HNWIs frequently commit to PE for diversification. A few years ago, I advised a family office in Lagos that allocated $10 million across two funds and a direct co-investment — all initiated after referrals from my network.
Institutional Investors
Pension funds, endowments, insurance companies — through their consultants and investment teams — often co-invest. I joined deals sponsored by a university endowment, contributing alongside their diversified portfolio.
Private Equity Investment Strategies I’ve Used
Fund Investments
Investing in a private equity fund means you commit capital that a general partner (GP) draws down over several years to invest in multiple companies. I’ve participated in both:
- Venture capital (VC) funds, where I focused on fintech startups in East Africa.
- Buyout funds, where we pursued operational improvements in consumer goods companies.
Key lessons learned:
- Rigorous due diligence on GPs: review their track record, team cohesion, and alignment of incentives.
- Tiered commitments: incrementally invest via fund-of-funds or quest for first close allocations from top-tier GPs.
Your Interest: What is Private Equity Fund?
Co-Investments
In 2018, I received a co-investment invitation alongside a mid-sized buyout firm. By analyzing the management team’s operations plan and the deal’s valuation, I deployed $2 million directly — avoiding the GP’s fees and boosting IRR by 3 to 5 percentage points.
Direct (Club) Investments
Forming a club deal — a small consortium pooling capital for a specific opportunity — has been one of my most rewarding strategies. In one example, my group acquired a regional logistics business. I led operational oversight and helped implement new systems that improved margins by 1,500 basis points over 24 months.
Secondaries
I’ve also participated in secondary fund purchases, where we bought LP interests in maturing private equity funds at a discount. This allowed us to access seasoned assets, observe the portfolio’s performance, and enjoy accelerated distributions.
Building a Private Equity Portfolio: My Framework
Define Allocation Targets & Objectives
I start with goals that combine return expectations and liquidity preferences:
- Target 15–20% annual net IRR for early-stage VC.
- Target 12–15% annual net IRR for buyouts.
Diversify Strategically
I built a portfolio spanning:
- Two early-stage VC funds (10% each).
- A buyout and growth equity fund (30% each).
- Three co-investments (5% each).
- Reserve 20% for secondary opportunities.
Conducting Due Diligence
My due diligence process took a comprehensive approach:
- Track record: Analyze GP’s investment performance, exits, and consistency across market cycles.
- Operational expertise: Interview current and former portfolio company executives.
- Alignment of interests: Review GP’s personal capital commitment and carried interest structure.
- Legal & structuring: Evaluate fund terms, governance, distributions, and key-man clauses.
Deal Structuring & Terms
I’ve always studied the fund’s Limited Partnership Agreement (LPA) for fee structure, distribution waterfall, clawback provisions, and GP removal rights. For direct deals, I’ve negotiated:
- Preferred equity with liquidation preference.
- Board seats or observer roles.
- Protective covenants on budgets and business decisions.
Step-by-Step: How to Invest in Private Equity
Step 1: Education & Networking
My journey began before writing a check — I absorbed books like “King of Capital” by David Carey, attended pitch days, and joined PE associations. Surround yourself with experienced investors and learn from every forum.
Step 2: Identify Your Gateways
- Fund investment: Research GPs with strong track records in your regions of interest.
- Co-investment: Build relationships with GPs willing to invite LPs into deals.
- Direct deals: Develop access through personal and professional networks.
- Secondaries: Monitor platforms specializing in fund secondary sales.
Step 3: Evaluate and Commit
For fund or co-investment opportunities:
- Pitchbook, Preqin, or Refinitiv research to track deal flow.
- Attend GP calls, review investment memos and model projections.
- Make a binding commitment letter when ready.
Step 4: Deployment & Oversight
After commitment, capital is drawn and invested per fund schedule or direct deal terms. My role continued through board participation, transparency reports, and active support to management teams.
Step 5: Monitoring & Exits
I monitor via:
- Quarterly financials: revenue, EBITDA, free cash flow.
- KPIs: customer acquisition, unit economics, supply chain metrics.
- Progress on exit preparation: strategic sale, IPO readiness.
For example, I co-led the sale of a fintech portfolio company to a larger regional bank in 2022 — securing a 3× net return within four years.
Guarding Against Risk
Illiquidity
Private equity is illiquid by nature. When I began, I structured my assets to avoid liquidity shortfalls — maintaining cash reserves and diversifying across vintages.
Execution Risk
A weak management team can derail any business. I mitigate this by insisting on strong founder retention, alignment through equity incentives, and regular engagement.
Leverage Risk
In buyouts, debt amplifies both returns and risks. I worked closely with debt providers to ensure covenant structures were reasonable — too restrictive could hamper growth, too loose invite distress.
Market Cycles
As the 2022–2023 deal slowdown demonstrated, macro conditions matter. I built flexibility into investment pacing, staying ready to deploy during downturns or hold off in overheated markets.
Tax, Legal & Regulatory Considerations
Deal Structures
Many of my deals were executed via special purpose vehicles (SPVs), which simplified investor exposure and governance. These structures ensured clarity in tax treatment and liability containment.
Cross‑Border Compliance
When the co-investment involved a Kenyan services firm, we faced FX and regulatory hurdles. We engaged local counsel, implemented hedging via forward contracts, and structured the entity in a tax-efficient jurisdiction.
Reporting & Transparency
I ensured quarterly NAV statements, annual audited financials, and tax reports (e.g., K‑1s or equivalents) were delivered — fostering trust and compliance across LPs.
Ongoing Learning & Adaptation
The private equity landscape evolves rapidly:
- Sector specialization: My recent interests include clean energy, agri‑tech, and fintech.
- Geographies: I’ve shifted part of my allocation from West Africa into Southeast Asia to capitalize on high-growth economies.
- ESG integration: Today, environmental, social, and governance metrics are integrated across deal selection, performance milestones, and exit valuations.
I attend annual conferences (AVCJ, SuperReturn, Africa Finance Week) and regularly engage with thought leaders to refine my approach.
Sample Timeline of My Private Equity Journey
| Year | Activity | Outcome |
|---|---|---|
| 2012‑2013 | Learning, networking, attending pitch forums | Built foundational knowledge and GP relationships |
| 2014 | Committed to two VC funds | Both achieved >20% gross IRR; strong deal flow in fintech |
| 2016 | Participated in co-investment with buyout GP | $80m revenue consumer brand — 3.2x MOIC realized in 2021 |
| 2018 | Worked on secondaries purchase of matured fund interests | Acquired at 85 cents on the dollar, multiple payouts within 2 years |
| 2020 | Led formation of investment club | Acquired logistics business — EBITDA margins improved from 8% to 23% |
| 2022‑present | Expanded into ESG and Southeast Asia sectors | Currently finalizing two co-investments in solar micro‑grids and agritech |
Practical Tips for Aspiring PE Investors
- Build professional credibility via rigorous track record and integrity.
- Develop relationships: trust is the cornerstone of co-investment partnerships.
- Negotiate terms aligned with your investment objectives (fees, oversight, locks, distributions).
- Maintain liquidity reserve for capital calls and future co-investment deals.
- Track KPIs and exit readiness from day one — this discipline paid dividends in my later portfolio exits.
Conclusion
Private equity has been one of the most rewarding and intellectually stimulating areas of my investment career. It requires patience, operational intensity, and a strong network — but for those willing to commit, it offers compelling returns and the satisfaction of building value where it counts.
If you’re considering your first private equity investment:
- Educate yourself — attend trainings, read widely.
- Network actively — GPs, LPs, fellow investors.
- Build a small pilot portfolio — start with fund exposure.
- Expand to co-investments as you gain confidence.
- Monitor, support, and stay ready for opportunity.
With discipline, due diligence, and operational rigor, private equity becomes more than a financial asset — it becomes a platform to impact businesses and economies at scale.
Final Thoughts
Investing in private equity isn’t just about capital — it’s about partnerships, value creation, and vision. Over thousands of hours of meetings, analyses, and board sessions, I’ve learned that success lies in preparation, integrity, and long-term commitment.
If you’d like to discuss any of the structures, strategies, or deals I’ve mentioned above, I’d be happy to share more — including sample LP agreements or waterfall models. Just reach out.
