Private equity funds detailed

In developing economies, the role played by the private equities is very important. They help the companies which are not able to grow from a position to heights due to shortage of Capital. Private equity firms raise money from institutional investors, like pension funds, insurance companies, sovereign funds, big families etc. The main purpose of investing in private business, growing them and selling them later, hoping to create better returns for investors than they can reliably get from other opportunities.

Private equity is an alternative asset class alongside real estate, venture capital, distressed securities and more. Alternative asset classes are considered less traditional equity investments, which means they are not as easily accessed as stocks and bonds in the public markets.

Now we may confuse that the firms are interested in acquiring and running businesses, it is not correct. Private equity firms do not run businesses where they are investing. Then what they do, they back an experienced management team to carry out an ambitious but realistic growth plan usually over a period of time, usually three to five years, but in some cases more than that.

Private equity investors generally work towards funding new ideas, technology, makes acquisitions, expanding their working capital and improve the financial statements of companies. When we just look on venture capitals, we may feel that the private equities are same. Both of them invest in start ups for long term, which will help them to grow and make companies to public and merge or amalgamate.

The main difference between startups and venture capitalists, are ,venture capitalists invest in startups, but the PE’s invests in more mature companies.

The income of private equities are management fees they charge and also the money they charge as performance fees for sale of companies after reaching the investment targets.

Usually they invest in stressed assets but they also will invest in need based companies.

PE funds benefits by providing liquidity at the time of need without necessitating them to approach banks. Some PE funds provides occasionally new ideas for the development of the companies. You can also look on to them for fastpaced turnarounds, unusual growth etc.