Private Equity

Private equity, in short, is capital that is not publicly traded on a stock exchange but is invested by private equity investors directly into private companies.

Capital for private equity is usually raised from retail and institutional investors, and can be used to fund new technologies, expand working capital that is being invested in a company, or to make acquisitions.

There are various types and styles of private equity. Among the most common investment strategies in private equity are leveraged buyouts, venture capital, growth capital, distressed investments and mezzanine capital. With a leveraged buyout transaction a private equity firm buys majority control of an existing, established enterprise. This is not the same as for instance venture capital, which is also known as a growth capital investment. This refers to a private equity firm investing in emerging and starting companies that have not yet established themselves.

All in all, private equity funds usually have much longer investment horizons than funds that hold publicly traded securities: as securities issued by private companies are highly illiquid as they are not traded in public securities markets. Secondly, there are limited opportunities for resale to another party. Thirdly, some private equity funds tend to act as partners in managing a company they back, rather than being merely passive investors.

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