Private Equity in finance, is an asset class consisting of equity securities that are not publicly traded on a stock exchange. Here investors 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 very wealthy individuals and institutional investors who commit large sums of money for long periods mainly for 5 years or more and is used to fund new technologies, expand working capital, make acquisitions, or strengthen a company’s balance sheet.
This is distinct from a venture capital or growth capital investment, as in this type of investment firms typically invests in young or emerging companies, and rarely obtain majority control. Investment by private equities is the most important funding source in the entrepreneurial marketplace. Among the most common investment strategies in private equity are: leveraged buyouts, venture capital, growth capital, distressed investments and mezzanine capital. In a typical leveraged buyout transaction, firms buys majority control of an existing or mature firm. This type of 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.
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Transfer of private equities are strictly regulated; therefore, any investor looking to sell his/her stake in a private company has to find a buyer in the absence of a market place. Returns on this type of investment generally occur in three ways: a merger or sale, an initial public offering, or a recapitalization.
This type of investments are usually derived from a high net-worth individual who represents an essential source of funding for early stage, high-risk ventures. Private equity investors have proven to be the single most important players in the entrepreneurial marketplace.
So if you want stable and long period term returns then go for Private Equity.
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