The Back Door Way Ordinary Investors Can Profit from Private Equity Firms

Private equity firms are replacing hedge funds as Wall Street’s glitziest way to make a fortune, and you can get your share

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The Private Equity Edge Over Public Investing

Private equity funds typically control a company — unlike hedge funds and mutual funds, which normally just buy up a lot of shares of a company they like.

In fact, PE funds prefer to find companies they believe are underperforming their potential.

Once they find such a company, the PE fund doesn’t just buy shares — it takes the company over. Frequently, it fires the current management team and installs its own, making changes it believes will grow the business.

In a way, that sounds a lot like corporate raiders, such as Gordon Gecko in the movie WALL STREET. They buy a company worth more with its pieces sold off than as a functioning entity — and then sell off the pieces, pocketing the profits despite destroying the company.

Actually, though, PE funds are the opposite. They buy the company lock, stock and barrel to improve the its performance — not to destroy it.

If the company they buy is a publicly traded company, the PE fund delists it. They don’t want to divide the…