Private Equity is a type of fund or investment in a business in which the company’s entire equity base is owned by one or a small group of individual investors. It is often shortened to the initials - PE, for ease of usage.
Under the private equity model, the company does not issue shares onto the stock market and hence, is not usually required to release public financial statements or comply with other securities regulations.
PE firms are generally considered to be more ruthlessly focused on generating shorter-term cash profits from their operations than joint-stock companies.
Types of Private Equity
There are nine types of private equity based on what the fund is to be used for. Listed below are all nine types -
- Leveraged buyout
- Venture capital
- Growth capital
- Real estate
- Infrastructure
- Funds of fund
- Mezzanine capital
- Distressed equity
- Secondaries
To save a business from going bankrupt, the PE firm concerned often chooses to buy all the shares of the company in order to increase the value by creating a hole in the market (which is an example of Leveraged Buyout).
Use of the Term in Sentences
- Private equity firms giving quicker returns to the investors are more popular and trustworthy to the people since it allows the investors to reinvest it for continuous profit.
- Investment professionals at a private equity firm are responsible for managing the PE funds raised.
- Hedge funds and private equity funds often operate similarly.