Private equity is an alternative investment class and consists of capital that is not listed on a public exchange. Private equity is composed of funds and investors that directly invest in private companies, or that engage in buyouts of public companies, resulting in the delisting of public equity. Institutional and retail investors provide the capital for private equity, and the capital can be utilized to fund new technology, make acquisitions, expand working capital, and to bolster and solidify a balance sheet.
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What is Private Equity?
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What are the benefits of Private Equity?
Cash infusion: PE groups have deep pockets and can provide the financial resources to fuel growth. These firms may provide the capital needed to renovate a facility, buy new equipment or launch a marketing effort.
Expertise: Private equity can supply the talent your business is lacking. These are typically hands-on groups who will help you meet new business goals and maximize company value. They provide experts who will roll up their sleeves and work alongside you, whether that means launching online distribution, securing a government contract or filling some other essential need in your business.
Connections: Some PE groups host annual mastermind events. Designed for CEOs and company leaders, these sessions are an opportunity to share best practices and hear emerging trends. The right PE firm is your path to a new community of peers and valuable business connections.
Management incentives: If you’re looking to reward your management team, private equity is one way to do that. PE investors want to ensure your management team, with all their experience, will stick around. They of- ten provide equity and worthwhile incentive programs to make that happen.
Proven returns: Private equity firms are experts at creating value. One study from Boston Consulting Group showed that two-thirds of private equity deals resulted in at least 20 percent annual growth for the purchased company, with nearly half realizing 50 percent annual profits or better. For investors, private equity outperformed stocks by 4 percent in the U.S. over the last 20 years.
Commitment to success: PE firms have their own vested interests in making sure your business does well. If a PE firm acquires or invests in your company, you can rely on their commitment to ensure its future is successful.
Asset allocation stabilities your risk and reward by allocating your assets
One place to hold your investments
Financial instrument that holds some type of monetary value
Getting the shares of a private corporation to the public in a new stock issuance
The importance of Private Equity
In addition to driving growth and improving the performance of the companies in which it invests, private equity has historically delivered superior returns relative to other asset classes over the long term. Private equity moves in cycles but has a long-term investment horizon. Several studies have shown that portfolios with an allocation to private equity have historically delivered higher returns with only a moderate increase in risk. Private equity also provides investors with access to a private, less-efficient market, taking advantage of pricing disparities. The global universe of private companies available to investors is far larger than that of public companies. Investors in private equity can gain exposure to carefully selected and efficiently structured companies with strong corporate governance and growth potential.
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