Friday, December 3, 2010

Private Equity

Private Equity: Private equity funds typically invest directly in private companies, often taking 100% ownership or participating/funding a management buyout. The usual process is that a private equity fund will buy a company that has a lot of inefficiencies or locked up value, and then it may bring in new management, consultants, and seek to reduce costs and inefficiencies while also growing the business and possibly combining it with other businesses to create shareholder value. Once the private equity firm has created maximum value it may exit through an Initial Public Offering (IPO) or it may sell the company to a similar business (a trade sale), or it may even sell the business to another private equity fund. Thus the assets in which a private equity fund invests are far less liquid than e.g. shares, but due to the control and expertise that private equity firms have, the potential returns they can generate can be very attractive relative to listed equities. 

Synonyms: Buyout fund, Private capital fund, Alternative assets, Pre-IPO fund, Venture capital fund, Special situations fund

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