Private Equity refers to investments made in privately held companies. Investors purchase shares of these companies with the aim of increasing their value and realizing profits after a certain period.
Private Equity is an investment type used for financing privately held companies. Private equity funds typically invest in companies with high growth potential that are not considering going public or that wish to be restructured according to a specific strategy. These investments are generally made with a long-term perspective, aiming to increase the value of the companies.
Private equity funds are usually formed from capital collected from institutions, pension funds, family offices, and high-net-worth individual investors (HNWI). These funds consist of a pool of contributions from investors. The investment process involves several stages, including target identification, due diligence (comprehensive analysis), making the investment, value enhancement, and exit strategy. Fund managers identify the sectors and companies they want to invest in and then conduct thorough analyses of selected companies to make investment decisions.
When the investment is made, the fund typically purchases a portion or all of the company's shares and gains a say in management. Fund managers implement strategic changes and operational improvements to increase the value of the companies they invest in. When the investment period ends, funds usually exit by taking the companies public, selling them to another company, or transferring them to another private equity fund.
The advantages of private equity investments include high return potential, the opportunity to exert control and influence, and the ability to make long-term investments. However, these investments also come with disadvantages such as liquidity risk, high risk, and the requirement for long-term commitments.
In summary, private equity refers to investments made in privately held companies and is typically used for companies with high growth potential. While these investments offer significant return potential, they also involve considerable risks. Private equity funds provide investors with opportunities for control and influence while adopting a long-term investment perspective.