Private equity is a form of investment that involves investing in companies – typically private companies - in return for an ownership stake in them.
These investments are made by private equity firms, which are entities that pool together funds from various sources - such as wealthy individuals, pension funds, other private equity firms, and endowments - to then invest in businesses with growth potential.
In short, the role of private equity firms involves raising money from external investors, then investing that money – often coupled with debt - in a selection of businesses with a view to enhancing their value and subsequently selling those businesses for a profit. The businesses that a private equity firm has invested in are often referred to as the private equity firm’s “portfolio companies”.
Throughout these steps, private equity firms make money in various ways, including through charging “management” fees to investors for investing their money; dividends paid by portfolio companies; and taking a cut of any profit made when each target business is sold.
Private equity investments are characterised by their medium-term (3-7 year) horizon and active involvement in the management of the investee companies. While they can offer attractive returns, they also involve risks, including the potential for investment losses. In addition, investments in private companies are less “liquid” (i.e. harder to turn into cash) than investments in public companies, as shares in private companies often can’t be sold until the investee business is sold or floated on a stock exchange.
With all this in mind, this course aims to provide key insights insights into this important aspect of the financial world and its role in driving business growth and innovation.
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