When High Leverage Can Mean Fat Profits
In practice, incorporating a private-equity approach into your investment strategy isn't very different from long-term value investing, so utilizing it can make a lot of sense. I've been discussing this topic a fair amount over the past few days, and one subject came up several times: the use of more leveraged approaches to PE-like investing. This might particularly work for aggressive investors. If you are looking for the highest returns over time, you could do a lot worse than structuring your portfolio along the lines of a leveraged-buyout fund.
Leveraged buyouts have been around since the 1950s, but they really hit their stride in the 1980s. In short, the LBO fund buys a target company with mostly debt and a sliver of equity financing. The cash flow generated from the business is then used to pay down debt over time and rebuild the equity portion of the capital account. Later on, when the equity in the business has grown to several times the original capital invested, the company is sold, often via an initial public offering....519 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.
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