Private equity consists of equity securities and are not publicly traded by
companies and considered an asset class. Investments for private equity
generally involve one or the other of capital investment into an operating
company or the acquisition of an operating company. Capital is obtained normally
from institutional investors for private equity. There are various kinds of
private equity and the term even has different connections in different
Private equity commonly includes the following:
· Leveraged buyouts
· Venture capital
· Growth capital
· Distressed investments
· Mezzanine capital
· Other strategies
Leveraged buyouts involve a financial sponsor without committing all
the capital required agreeing to an acquisition.
Venture capital is equity investments in young companies for start
up, development or expansion of a business. It is usually associated
with new technology, new marketing concepts or new products not yet
Growth capital is usually minority investments in more mature
companies desiring to expand, restructure, enter new markets or
finance a large acquisition. Growth capital does not change control
of the business.
Distressed and Special Situations
Distressed or special situations refer to investments in equity or
debt securities for financially stressed companies.
Hedge funds employ a variety of methods of distressed investment
including active trading of loans and bonds issued by distressed
The most junior portion of a company’s capital structure that is
senior to the company’s common equity referred to as debt that is
subordinated or preferred equity securities is Mezzanine capital.
Investments into already established private equity assets are
considered secondary investments.
Other strategies that can be considered private equity or a
closely related market include:
· Real Estate
· Energy and Power
· Merchant Banking
Real Estate is usually the riskier investment looking more like a
leveraged buyout rather than a traditional real estate investment.
Infrastructure investments are in various public works including
bridges, tunnels, toll roads, airports, and public transportation.
Energy and Power investments are made in a variety of companies
rather than assets that produce and sell energy.
Financial institutions negotiated private equity investment with
securities that are unregistered both publicly and privately held
companies is negotiated private equity merchant banking.
Early history and the development of venture capital
The founding of a couple of venture capital firms in 1946 was the
beginning of modern private equity. Today some large venture and
private equity firms are at the center of many large and important
Typically private equity services are only available to
institutional or very high net worth individual investors who are
considered accredited investors.