Private Equity

Private Equity

1. Ownership in a corporation that is not publicly-traded. That is, private equity involves investing in privately held companies. Most of the time, private equity investors are institutional investors and high net-worth individuals who have a large amount of capital to commit to these investments. Private equity is usually held for a long period of time, and trading in it is useful when a company is in danger of bankruptcy, because it provides access to a great deal of capital very quickly.

2. A company that trades in private equity. Often, private equity firms band together and buy out publicly-traded companies, making them privately held.

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Private equity. Private equity is an umbrella term for large amounts of money raised directly from accredited individuals and institutions and pooled in a fund that invests in a range of business ventures.

The attraction is the potential for substantial long-term gains. The fund is generally set up as a limited partnership, with a private equity firm as the general partner and the investors as limited partners.

Private equity firms typically charge substantial fees for participating in the partnership and tend to specialize in a particular type of investment.

For example, venture capital firms may purchase private companies, fuel their growth, and either sell them to other private investors or take them public. Corporate buyout firms buy troubled public firms, take them private, restructure them, and either sell them privately or take them public again.

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Private Equity

What Does Private Equity Mean?

Equity capital that is not quoted on a public exchange. Private equity consists of investors and funds that invest directly in 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 and is used to fund new technologies, expand working capital, make acquisitions, or strengthen a company's balance sheet. The majority of private equity consists of institutional investors and accredited investors (rich people) who commit large sums of money for long periods. Private equity investments are often long-term in cases of company turnarounds or a liquidity event such as an IPO or a sale to a public company.

Investopedia explains Private Equity

The size of the private equity market has grown steadily since the 1970s. Private equity firms sometimes pool their funds to take very large public companies private. Private equity deals can rise into the range of billions of dollars. Many private equity firms conduct what are known as leveraged buyouts (LBOs), in which large amounts of debt are issued to fund a large purchase. Private equity firms then try to improve the company's financials in the hopes of reselling the company to another firm or cashing out by taking the company public in an IPO.

Related Terms:
• Equity
• Leveraged Buyout—LBO
• Mezzanine Financing
• Private Placement
• Shareholders' Equity