Private Equity


What is 'Private Equity'

Equity capital that is not quoted on a public exchange. Private equity consists of investors and funds that make investments directly into private companies or conduct buyouts of public companies that result in a delisting of public equity. Capital for private equity is raised from retail and institutional investors, and can be used to fund new technologies, expand working capital within an owned company, make acquisitions, or to strengthen a balance sheet.

The majority of private equity consists of institutional investors and accredited investors who can commit large sums of money for long periods of time. Private equity investments often demand long holding periods to allow for a turnaround of a distressed company or a liquidity event such as an IPO or sale to a public company.

BREAKING DOWN 'Private Equity'

The size of the private equity market has grown steadily since the 1970s. Private equity firms will sometimes pool funds together to take very large public companies private. Many private equity firms conduct what are known as leveraged buyouts (LBOs), where large amounts of debt are issued to fund a large purchase. Private equity firms will then try to improve the financial results and prospects of the company in the hope of reselling the company to another firm or cashing out via an IPO.

  1. Distribution Waterfall

    The order in which a private equity fund makes distributions. ...
  2. Repackaging

    When a private equity firm takes a public firm private by purchasing ...
  3. Private Purchase

    A situation in which an investor (either individual or institutional) ...
  4. Stockholders' Equity

    The portion of the balance sheet that represents the capital ...
  5. Club Deal

    A private equity buyout or the assumption of a controlling interest ...
  6. Leveraged Buyout - LBO

    The acquisition of another company using a significant amount ...
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  1. Can mutual funds invest in private equity?

    Mutual funds can invest in private equity indirectly by buying shares of publicly listed private equity companies, such as ... Read Full Answer >>
  2. What is a private secondary market?

    Two kinds of private secondary markets exist. The first is a form of buying and selling of pre-existing financial commitments ... Read Full Answer >>
  3. What steps are necessary for a business to secure equity financing?

    An equity financing arrangement creates a long-term, mutually beneficial relationship between investors and a startup or ... Read Full Answer >>
  4. How does zero-based budgeting help lower operating costs?

    Zero-based budgeting helps lower costs by reducing unproductive spending. Zero-based budgeting is a rigorous process that ... Read Full Answer >>
  5. I want a career in private equity. How can I get started?

    Private equity is a lucrative and rewarding career, but getting your foot in the door can be difficult. The competition is ... Read Full Answer >>
  6. How does the risk profile of private equity investments compare to those of other ...

    High-net-worth investors have embraced the strategy of placing a portion of their equity positions in alternative assets ... Read Full Answer >>
  7. What are some of the more reputable private equity firms?

    Private equity firms invest money in companies and attempt to make those companies more profitable. If the private equity ... Read Full Answer >>
  8. Why are private equity investments usually reserved for rich people?

    Private equity is an attractive investment option for high-net-worth individuals and institutional investors because of its ... Read Full Answer >>
  9. What is a debt/equity swap?

    Occasionally, a company will need to undergo some financial restructuring to better position itself for long term success. ... Read Full Answer >>

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