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Private equity one investor optionSearch is always on for promising ideasBy Bina Brown  Google is one example of a company that was in demand with private investors. YOUR E-MAIL ALERTS(CNN) -- There are plenty of good commercial ventures that with the right management and funding, have returned high returns to investors well before they made it onto the stock market. Companies like search engine Google or online bookstore Amazon spring to mind. Others include Germany's Deutsche Telecom, weight control company Jenny Craig, and Spanish travel operator Amadeus. These and thousands of other private companies needing capital for the development or expansion of an idea or product are increasingly turning to private equity fund managers. This is good news for investors who want to tap into some bright ideas early or are looking to diversify their portfolio in carefully selected high growth private companies. There are an estimated 3,000 private equity fund managers operating globally whose specialty is finding promising companies in need of finance. Their aim is to grow them into profitable companies or develop an exit strategy for the initial investors such as through a management buyout. According to Robert Cedaro, a division director of Macquarie Bank, which operates two private equity funds, while there are considerable risks with private equity investing, the returns can be very attractive if the right managers and companies are chosen. "If you find a good private equity manager they can easily outperform markets by 15 percent. Equally if you get a bad one, they can underperform by just as much," he says. Some of the big name private equity investors include Blackstone Group, Carlyle Group, Texas Pacific Group, Macquarie Capital Alliance, CHAMP Private Equity and Mecom. Veronis Suhler Stevenson focuses only on the media, communications and information industries in North America and Europe. Natural hedgeAs well as the possibility of outperforming listed shares, private equity returns are not directly correlated to the stock market. So even if the stock market is trending downwards, private equity may be experiencing solid returns, thereby acting as a natural hedge to offset poor returns from listed shares. The benefits of diversification across a range of asset classes are well documented, and adding private equity as an asset class to a portfolio can help mitigate against the risks of volatility. Furthermore private equity funds mitigate the risks of a single investment by spreading their investments across as many as 100 young constructive companies to form an investment portfolio. Investing in private companies is not known for its liquidity, so investors need to be prepared for their money to be locked up for at least ten years. Cedaro suggests picking funds which have exposure to the three main specialty areas of early stage, expansion capital and buyout, to smooth out the possible returns. "At the early stage 20-30 percent of companies don't make it -- but a few make spectacular performers such as Google or Intel. Of course, you only hear about those that survive," he says. "Then there are those in the expansion phase that are as good as profitable but need additional capital. At the buy-out stage managers are more consistent with solid performers. There are not as many spectacular ones or duds," he says. Expectations are that private equity funds will continue to find investors keen to pick the next big winner, particularly as new markets including China and India open up government-owned opportunities to private investors. United States private equity giant the Carlyle Group got the ball rolling in China last year after it agreed to buy an 85 percent shareholding in Xugong Group Construction Machinery Co, a Chinese construction machinery manufacturer and distributor, for $375 million. Japan, where corporate restructuring and succession issues have been on the agenda for a number of years, is expected to offer further opportunities for global private equity managers. 
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