Speculation grew this week that Royal Bank of Scotland and Lloyds Banking Group will try to dump their private equity portfolios. The two British banks would join other financial companies, endowments, and pension plans forced to sell off positions in private partnerships because of financial pressures. With so many sellers, investors can buy into such funds for as little as 50% of asset value. "You can smell blood in the water," says Dan Deighan of Deighan Financial Advisors. But private equity is illiquid, and investors must agree to commit more cash in the future-money they may not have. And just because funds are cheap doesn't mean they can't get cheaper, especially ones of the 2006-07 vintage. Investors should find an adviser who specializes in private equity (bank wealth-management divisions often connect people) and speak with a fund's general partners. "There's a lot of money to be made," Deighan says, "but a lot to be lost if you don't understand what you're doing."
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