What is Private Equity Investment?
The term private equity is used to distinguish an investment in a privately held company from an investment in publicly traded stock. Private equity investment refers to several types and strategies of investing in private companies or taking public companies private. An entire industry has been built around private equity investment, which has come to be highly profitable, and yet is still able to avoid the level of public scrutiny that attends other types of deals which involve publicly traded securities. One of the larger and more common forms of private equity investment is what is known as a leveraged buyout. In this type of transaction, a private equity firm takes on debt in order to raise the funds needed to buy out a public company, or in other words to purchase a majority of its stock, which it then takes off the market. This effectively turns a public company into a private one. The debt that was incurred is then repaid with interest from the efficiently managed earnings of t
Private equities are equity securities of companies that have not listed their stock on a public exchange and are generally thought of as long – term investments. As they are not listed on an exchange, any investor who wishes to sell securities in private companies must find a buyer in the absence of a marketplace. Investors in private securities generally receive their return through one of three ways: an initial public offering, a sale or merger, or a re – capitalisation. It first started in the UK in the late 18th century when entrepreneurs found wealthy individuals to back their projects. This method of financing soon caught on and became an industry in the late 1970s and early 1980s when a number of private equity firms were founded. This type of investment has since become extremely popular as there are a lot of opportunities for high financial gains. The main sources of private equity investment in the UK are the private equity firms and business angels who are private individua
A class of its own Private equity is now a major component of alternative investment strategies – continually outperforming more traditional stock and bond portfolios. The opportunity of private equity investment is now available to investors from all walks of life; in fact investment firms around the world have already added private equity to mainstream portfolios as a strategic tool to deliver above average returns. In essence, private equity offers the opportunity to generate higher absolute returns while enhancing portfolio diversification, therefore improving the balance of risk and reward.
In the current shouting match about private equity, there are prominent proponents and opponents. Tony Blair and Gordon Brown, together with many journalists and prominent figures in the private equity business have fulsomely praised the wonders of private equity as a boon to the UK economy, creator of jobs and exemplar of the UK’s pre-eminent position in world financial markets. Detractors include the European and UK trades unions, some continental European politicians, one of whom described private equity investors as ‘locusts’. Journalists are divided – as would be expected – those from the more right wing end of the spectrum like the ‘Economist’ seem to view the growth of private equity as signalling the arrival of a new golden age of capitalism, whilst those with a more social democrat leaning view it with grave misgivings. But what are they describing? Nearly all the proponents and detractors are much clearer about their opinions than about the animal on which they are opining. H
