Private equity is a highly successful investment model which is used all over the world by some of the biggest global investment funds. It is also a hot topic of debate here as we have received a great many questions from your guys about how this investment vehicle works, and what it means for both investors and the companies who they invest in. To help us clear up any confusion we have the fund manager from TitleCard Capital on board to help us better explain to you the mechanics of private equity investment, let’s take a look.
The easiest explanation for what private equity does is to say that it is a fund which invests in an already established company which is seeking to raise capital. In return for this investment the fund will implement its knowledge and its business expertise to help the company reach its goals and impact opportunities, and in order to better protect its investment. These companies are either seeking capital so that they can grow and develop, but sometimes it is also seeking to be saved after a downturn.
The Injection of Cash
These businesses could look to a bank to lend them money or alternatively they could release extra shares which will raise capital in the company. The reason that they prefer to seek private equity however is so that they not only get the money which they are looking to raise, but also so that they can count on a team of experienced investors to help the business steer its way to success.
Not Venture Capital
Many people fall into the trap of thinking that private equity is the same as venture capital and whilst there are certainly some similarities between these two investment vehicles, there are also some key differences. The main difference here is that venture capital is exclusively talking about an investment in a young company or a start-up, which has a higher level of risk and requires much more input from the fund. Private equity is a term always used to talk about established companies which seek investment.
Where Does The Money Come From
The money which these investment funds use comes from a combination of sources such as high wealth individuals and businesses. The majority of the money however comes from places such as pension funds and high value savings funds. Very often the pension fund of the fire service is used in these types of investments and the low risk nature of private equity leads itself perfectly to what the fund is looking to achieve.
The goal of private equity investment is actually very simple, get in, make a big difference and then sell the share for a profit. It is for these reason why private equity investors will have a large influence on both the actions and the decisions which the business takes, because they are looking to be able to make a profit on their share of the company.
To read more on topics like this, check out the finance category.