Invest like a financial investor

For a long time, professional company buyers were disreputed as locusts, but even in times of zero interest they earn double-digit returns. Private investors can also benefit.

Silver spoons: The financial investor KKR tripled its stake by selling the cutlery manufacturer WMF

Et has been a few years since the then SPD chairman Franz Müntefering characterized an entire industry with a single word. Financial investors, he said in 2005, fell upon companies like “swarms of locusts”, grazed them and moved on. Although Müntefering never gave names, it was pretty clear who he meant – the private equity industry, which from then on had to live with the nickname “grasshopper” in Germany. The negative image, whether justified or not, was in the world.

But 14 years later something has changed. Of course, there are still some people who believe that financial investors of any kind are the result of evil. But many others have rethought. When American investors like KKR buy into German companies, there is no longer any outcry across the country. Instead, there are now even established medium-sized companies who would not mind the entry of a private equity investor.

After years of heated debate, a more sober understanding seems to be emerging that has a lot to do with the original meaning of private equity. The English term means “private participation” and was created to distinguish it from “public equity”. In the language of the financial markets, the latter means participation in listed companies, i.e. the purchase of shares on the stock exchange. Private equity, on the other hand, means that an investor, usually a fund, usually acquires the majority in a company that is not listed on the stock exchange. Ideally, the investor will succeed in whipping up the company and selling it again after a few years at a higher price.

Lucrative alternative in times of zero interest

The fact that the whole thing does not always take place in a cozy atmosphere and that managers and employees sometimes lose their jobs is one reason for the industry’s bad reputation for years. If the renovation succeeds, this is not only the rescue for many companies, but also lucrative for investors: If it is successful, your efforts will be rewarded with high returns. A good ten percent a year was not unusual in the past. This makes you sit up and take notice at a time when you can no longer earn anything with traditional investments.

Zero interest rates are a bitter reality and there is no change in sight. As a result, attitudes towards private equity have also changed. The high return opportunities attract even conservative investors such as pension funds; for many super-rich private equity has long been an integral part of the investment strategy. Not even ordinary investors need to feel left out. Because there are now ways and means for them to participate in private equity success, albeit with a few restrictions. As always, however, one should be aware of the risks.