Private Equity Money Invested But Not Publicly Traded
When money is invested but not publicly traded
, it is called private equity. It could either be in the stock exchange market or invested as part of buyouts. Such buyouts are carried out to render the hitherto public companies into private ones.Various types of private equities are there. Some examples are Leveraged buyouts, growth and venture capitals, distressed investments as well as the mezzanine capital. Such enterprises may be short or long term on duration. Leveraged buyouts carried on by a person involve the presence of some sponsor. Such sponsor takes care of the finance required for the work.
On the other hand, acquisition debt is one that does not require financial sponsor. Downside of the system is that one cannot claim on other investments that are managed by such sponsor. Such financial structures can be very attractive at the onset. However, it also involves a lot of factors to be considered.
Usually such practices of private equity benefits both the person concerned and the sponsor. Benefit for the sponsor comes in two ways. First; the investor has to provide only a fraction of the capital required for such acquisition. Second; the returns to the investor will easily surpass the cost of the debt.
Ordinarily the capitals in respect of such equities come from either individual investors or from the corporations. During the 1970s many investors thought that the private equity is much more paying in nature in comparison to the investments made in public equity. For the institutional investors, these highly qualitative investments are made part of broad asset collections.
Institutional investors however, do not invest directly in the private companies. This happens since most of them do not have the necessary expertise and knowledge. Investors make huge amount of indirect investments through private equity fund. While some people have the capabilities of developing their own private equity fund, most people look for charitable support to raise such a fund.
Others in the field invest through the fund of funds if they do not have the capabilities to locate the ideal one. At the same time the portfolio in such case becomes diversified and would be more useful than one-investor funds where many constrictions may accrue for the investor.
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