Investment Products: A Wide Variety of Investment Products Exist To Help You Achieve Your Financial Goals

Investment Products
A wide variety of investment products exist to help you achieve your financial
goals.
The main categories of investment products are:
 Stock
 Bonds
 Mutual Funds and ETFs
 Insurance Products such as Variable Annuities
Every investment product has its own general set of features including
level of risk and anticipated returns.
 Risk and Return. Risk means how safe your money will be and return
is how fast your money will grow. Generally, as investment risks rise,
investors seek higher returns. Be careful, you can lose all the money
you invest, including your principal.
Risk and return aren’t the only considerations when deciding what types of
investment products to invest in. You may also want to consider:
 Fees. How much it costs to invest

 Asset Allocation. Diversification of your overall financial situation.
 Liquidity. How easy it is to buy and sell the product.
 Fraud. Potential for investment fraud.
Private Equity Funds

What are private equity funds?
When you invest in a private equity fund, you are investing in a fund
managed by a private equity firm—the adviser. Similar to a mutual
fund or hedge fund, a private equity fund is a pooled investment vehicle
where the adviser pools together the money invested in the fund by all the
investors and uses that money to make investments on behalf of the fund.
Unlike mutual funds or hedge funds, however, private equity firms often
focus on long-term investment opportunities in assets that take time to
sell with an investment time horizon typically of 10 or more years.
A typical investment strategy undertaken by private equity funds is to take
a controlling interest in an operating company or business—the portfolio
company—and engage actively in the management and direction of the
company or business in order to increase its value. Other private equity
funds may specialize in making minority investments in fast-growing
companies or startups.
Although a private equity fund may be advised by an adviser that is

registered with the SEC, private equity funds themselves are not registered
with the SEC. As a result, private equity funds are not subject to regular
public disclosure requirements. Information about a private equity fund’s
adviser that is registered with the SEC is available here.
Who can invest?
A private equity fund is typically open only to accredited

investors and qualified clients. Accredited investors and qualified clients
include institutional investors, such as insurance companies, university
endowments and pension funds, and high income and net worth
individuals. The initial investment amount for a private equity investment
is often very high.
Even if you are not invested in private equity funds directly, you may be
indirectly invested in a private equity fund if you participate in a pension
plan or own an insurance policy, for example. Pension plans and insurance
companies may invest some portion of their large portfolios in private
equity funds.
What should I know?
Illiquidity
Because of their long-term investment horizon, an investment in a private

equity fund is often illiquid and it may be necessary to hold an investment
in a private equity fund for several years before any return is realized.
Private equity funds typically impose limitations on investors’ ability to
withdraw their investment. Investors in private equity funds should be
able to wait the requisite time period before realizing their return. For an
institutional investor, a private equity investment may represent only a
small portion of its diversified investment portfolio.
Fees and expenses

When investing in a private equity fund, an investor usually receives
offering documents detailing material information about the investment
and enters into various agreements as a limited partner of the fund. These
offering documents and agreements should disclose and govern the terms
of the investor’s investment throughout the fund’s life, including the fees
and expenses to be incurred by funds and their investors. The SEC has
brought enforcement actions, for example here, involving fees and
expenses that were incurred by funds and their investors without being
adequately consented to or disclosed. Investors should be vigilant about
the fees and expenses incurred in connection with their investment.
In addition, advisers may be managing multiple funds that are jointly

invested in multiple portfolio companies. The adviser has a legal
obligation to act in the best interests of each of the funds it manages and
must allocate expenses among itself, its funds and the funds’ portfolio
companies in accordance with this fiduciary duty. The SEC has brought
several enforcement actions, for example here, related to shifting and
allocation of expenses.
Conflicts of interest
Private equity firms often have interests that are in conflict with the funds
they manage and, by extension, the limited partners invested in the funds.
Private equity firms may be managing multiple private equity funds as well
as a number of portfolio companies. The funds typically pay the private
equity firm for advisory services. In addition, the portfolio companies may
also pay the private equity firm for services such as managing and
monitoring the portfolio company. Affiliates of the private equity firm
may also play a role as service providers to the funds or the portfolio
companies. As fiduciaries, advisers must make full disclosure of all
conflicts of interest between themselves and the funds they manage in
order to get informed consent.
The SEC has brought several enforcement actions, for example here,

related to an adviser’s alleged failure to disclose certain conflicts of
interest to the funds it manages. Through its various relationships,
including with affiliates and portfolio companies, there exists opportunity
for advisers to benefit themselves at the expense of the funds they
manage and their investors. It is important for an investor to be aware
and alert about the conflicts that exist, or that may arise, in the course of
an investment in a private equity fund.

Investment Products: A Wide Variety of Investment Products Exist To Help You Achieve Your Financial Goals

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Investment Products: A Wide Variety of Investment Products Exist To Help You Achieve Your Financial Goals

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Investment Products

The main categories of investment products are:

 Fees. How much it costs to invest

Private Equity Funds

Although a private equity fund may be advised by an adviser that is

Who can invest?

A private equity fund is typically open only to accredited

What should I know?

Because of their long-term investment horizon, an investment in a private

Fees and expenses

In addition, advisers may be managing multiple funds that are jointly

The SEC has brought several enforcement actions, for example here,

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