Private equity is an asset class within Private markets that invests long term capital in exchange for ownership stakes in companies that are not traded in public exchanges.
The model for generating returns consists in investing money from 3rd party investors into a company, improving the business (Value creation) and selling it after a limited holding period.
Any investment in a private company is considered private equity, whether done privately or professionally, although most investments are managed by specialized intermediaries that advise the Funds.
These investor can focus on different strategies:
- Leveraged Buyout: acquisitions of mature companies significantly financed by debt
- Venture capital: acquisitions of usually minority positions of younger companies with a high growth potential
- Growth capital: acquisition of minority or non-controlling stakes in more mature companies (usually between VC & LBO stages)
- Distressed turnarounds: acquisitions of companies that are undervalued due to temporary cash flow problems
Private equity aim to outperform public markets at the cost of liquidity, as capital is not accessible to investors for a long period of time, and higher entry tickets.
Usual investors in private equity funds are: Family office, Sovereign wealth funds, Financial institutions, Corporations, or even individuals (usually High net worth individuals)