Private Equity vs. Hedge Funds: Choosing the Right Alternative Investment for Accredited Investors

In the diverse landscape of alternative investments, Private Equity (PE) and Hedge Funds stand out as two of the most prominent options for accredited investors seeking to diversify their portfolios and potentially enhance returns. Of course, experienced accredited investors know this, however with generational wealth comes new management and paths of investments in either Private Equity or Hedge Fund investments.

Understanding Private Equity and Hedge Funds

Private Equity involves investing directly into private companies or engaging in buyouts of public companies, resulting in their de-listing from public stock exchanges. Investments are typically held for a long period, usually 5-7 years, and the focus is on long-term capital appreciation. Private equity firms actively manage the companies they invest in, aiming to improve financial and operational performance before eventually exiting at a profit.

Hedge Funds, on the other hand, employ a wide range of strategies to achieve high returns, including long and short positions, arbitrage, and derivatives trading. Hedge funds are known for their flexibility in investment choices and their ability to quickly capitalize on market movements. They often seek to generate returns over shorter periods compared to private equity and can invest in a broad array of securities.

The Private Equity Difference

1. Investment Horizon: Private equity involves a longer investment horizon, focusing on long-term growth and improvements. Hedge funds typically operate over shorter periods and are more reactive to market dynamics.
   
   

2. Capital Commitment: Investments in private equity are usually illiquid, with capital locked in until the exit of an investment. Hedge funds offer more liquidity, allowing investors to withdraw their capital according to the terms of the fund, which is often on a quarterly or annual basis.
   
   

3. Management Style: Private equity funds take an active role in managing the companies they invest in, whereas hedge funds may have a more hands-off approach, focusing instead on market positions and trading strategies.
   
   

4. Risk and Returns: While both investment types involve high risk, the strategies employed by hedge funds can lead to high volatility. Private equity typically involves restructuring

Why We Prefer Private Equity

At Legacy Capital Fund, we specialize in private equity investments, focusing on acquiring and revitalizing undervalued small businesses, particularly in the context of the retiring American legacy business wave. Let's explore the key differences between private equity and hedge funds and discuss why private equity may be the preferable choice for certain investors.

• Massive Market Opportunity: Approximately 480,000 business owners, mostly American legacy businesses, are expected to retire each year for the next 15 years, creating a saturated market of businesses for sale, which presents a significant investment opportunity
  
  

• Buyer’s Market Advantage: High interest rates have led to a significant drop in selling multiples, turning the market into more of a buyer's market, where listings start to outweigh buyer demand
  
  

• Private Equity Benefits: Private equity investments in small businesses are highlighted as offering higher returns, lower volatility, and less risk compared to public investment markets, and are uncorrelated with public markets
  
  

• Focus on High Margin Industries: Legacy Capital Fund targets industries like web-based technology and transportation/logistics, which are easy to scale, can be managed remotely, and face lower private equity competition
  
  

• Strategic Acquisition and Growth: Legacy Capital Fund utilizes a strategic process to enhance acquired businesses, including building internal teams, improving demand generation, and driving growth through strategic planning and technology implementation
  
  

• Proven Track Record: Examples include increasing leads by 276% and revenue by 163% year-over-year for Cisco’s Global Demand Generation business after strategic enhancements were implemented by Legacy Capital
  
  

• Market Trends and CAGR: The global transportation market is estimated to grow from $7.3 trillion to $15.9 trillion from 2022 to 2032, representing a compound annual growth rate (CAGR) of 8.2%. Similarly, the global technology market is expected to grow significantly, with a CAGR of 8.1%
  
  

• Geographical Focus: Legacy Capital Fund focuses on acquiring businesses within specific geographical regions, including the USA, Canada, Australia, and the UK for web-based technology, and the USA for transportation/logistics
  
  

• Investment Criteria: The fund targets businesses with underutilization of sales and marketing technology, minimal advertising, and seeks businesses valued between $2M-$25M with 5-25 employees
  
  

• Exit Strategy: Legacy Capital aims for a strong exit strategy by building the company to sell when business and market conditions are optimal, targeting a 30% increase in top-line revenue in year 1 and a 5-year cumulative increase of 300%
  
  

The Wave Is Happening Right Now

With the Legacy Capital Fund, we use a 160-point inspection to determine if a business is ready for acquisition and a long-term investment for profitable scaling. While Hedge Funds are a special talent for some investors, our excellence is from a 100% focus on Private Equity as the winning stable returns choice.

Would you like to understand the Legacy Capital Fund portfolio? Schedule a personal call with Founder and General Partner Scott Hauck or VP of Investor Relations Heidi Diemer, and download our Investor Kit to learn about investing in the Legacy Capital Fund.