In finance, private equity is an asset class consisting of equity securities and debt in operating companies that are not publicly traded on a stock exchange.
A private equity is a firm that generates capital investment by high net-worth individuals and firms. This capital is then used to invest in, and acquire, equity ownership in different companies and multiple businesses with a mission to sell each business, at a profit, within a few years.
The way a private equity firm works differs from a publicly held business. In publicly held businesses, stocks are listed on a public exchange and owned by a large number of people. However, stocks of a private equity firm are not quoted or available for public exchange.
In a private equity firm, investors make direct investments in private companies and conduct buyouts, hence delisting them from public equity.
Capital for a private equity is usually raided from institutional investors and retails. It can be primarily used to fund latest technologies, make business acquisitions, and even expand the working capital of an already owned company.
Majority of firms that are private equity based consist of accredited and institutional investors. This is typically because they have the financial strength and resources to invest money for long time periods. Unlike publicly held companies, private equity firms have long investment holding periods where the investors work with sheer dedication to turnaround a distressed company for profitable sale.
The private equity business market has been growing rapidly in size every since 1970. This market has attracted the best in the country, including top notch performers from companies listed in Fortune 500 and the elitist strategy & management consulting organizations.
The structure of fee of a private equity may vary from company to company. However, generally it may be broken down into 2 parts:
The two main functions of a private equity firm are:
Financial education is so important, but barely taught at all in our schools. Having resources online is great, but not if they are inaccessible to so many. Thanks 508!