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Private Equity is where the ownership of the company is in private hands ? hence they do not trade publicly on a stock exchange and are not required to file public reports. As there is no direct market for trading, these investments are suitable for investors who can withstand illiquidity for as long as a decade. Opportunities related to private equity investment are usually more suitable for big institutional investors such as pensions and endowments with the time and resources to assess the possible risks and profits, and the tolerance to wait many years to make finest use of investment returns.
There are mainly 3 types of private equity funds:
Buyout & Acquisition: The private equity buyers typically acquire 100% of a company, take it private often leaving a small incentive slice for management. Thefirm usually implements a new business plan and frequently changes management to improve a firm's monetary results.
In Venture Capital, the private equity fund frequently acquires a minority share of an early stage company whose products and services have yet to penetrate the markets on a grand scale. While the vast majority of these technology, internet and healthcare types of companies fail to produce results, one or two hits (Yahoo!, Skype, Sun Microsystems) can produce enormous returns.
Special Situations funds include several categories that don't quite fit into the other two buckets including Mezzanine and Distressed debt, Oil & Gas, Secondaries and sometimes Real Estate.
In the end, Private equity funds are a brilliant investment option for portfolio managers seeking to diversify their holdings to include assets not highly correlated with the public markets. For institutional investors such as pensions and endowments as well as savvy investors who can withstand heightened risk and illiquidity, private equity has the potential to generate compelling returns.
David
www.starlinggroup.com
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