Private equity investments are capital invested in public, but more typically private, companies on a private placement basis and are not available in the public markets. Private equity investments run the gamut of corporate finance strategies, ranging from financing of start-up companies to debt investments in mature companies.
Sub-categories that comprise private equity include: leveraged buyouts, venture capital, mezzanine financing, distressed debt, real estate, development capital and special situations.
Private equity managers invest via privately negotiated transactions, often acquiring large ownership stakes and taking an active role in monitoring and advising the companies in which they invest. They often exercise as much control or more control than the company’s management by generally holding one or more seats on the companies’ boards. This provides the opportunity to enhance returns by directly influencing the company and eventually engineering value creation and the ultimate exit from the investment.
Private equity investing involves a long-term investment commitment horizon, often an eight- to ten-year period. During the first three to five years of the partnership, capital is drawn through capital calls and invested. Positive returns, if any, are typically seen as the underlying portfolio companies mature and are liquidated, usually between three to seven years.