What Is Private Equity and its types?
Equities are known as private equity funds when investors invest directly in private companies. These equities aren’t indexed at the exchanges and are regulated with the aid of using industry-particular criteria. Hence the investors interested in private equities are typically retail investors or institutional investors who can afford to invest large sums of corpus for a longer period. This massive capital is later utilized by the agency to fund expansions, purchase new technologies, strengthen the company’s balance sheet, etc. These fund ranges have made investment phrases of ten to thirteen years and after the expiry, the fund is closed, and the fund is back to the partners.
Private equity funds invest in private companies in exchange for a share of their ownership. Unlisted companies typically choose PE funds when they are unable to raise funds through the issuance of equity or debt products or venture capitalists. These companies offer investors a diverse portfolio that lowers risk factors. The investment period of PE funds is 4 to 7 years. Seven years later, the company expects investors to close their investments and get good returns.
Introducing Private Equity (PE) in India
Over the last 13 years, India has invested nearly $ 100 billion in private equity markets. Many companies benefit from this important source of funding. This capital from private equity has helped many small businesses grow. This created employment opportunities and influenced the development of strategic skills.
In 2017 itself, about $ 26.5 billion of private equity capital will flow in, and that momentum is expected to continue for the next few years.
Benefits of investing in private equity (PE) fund
Below are some of the benefits of investing in a private equity fund
Untapped Potential
There are many untapped possibilities for corporate investment in private equity. Investors can make decent profits by investing in privately held private companies with great growth potential. Investors can also find opportunities to invest in companies that are not doing well in the stock market and will be privatized later.
Stringent Company Selection Process
Companies that manage private equity investments invest very carefully in potential companies and use a significant amount of resources to evaluate such companies. They also care about risk factors and strive to minimize them. After filtering all potential companies, they determine which companies present all the important characteristics to investors.
Clear accountability
Private Equity Farm management is responsible for dedicated professional shareholders who have the right to protect their interests and act accordingly.
Types of private equity funds
Venture Capital Fund
Small start-ups and early-stage start-ups have limited or no external sources of funding, so the funds invested in these companies are known as venture capital funds. These early startups are generally in the early stages of their formation, but ultimately have the potential for future growth. Start-ups with ambitious values and goals have venture capital funds as an excellent source of funding.
Buyout Or Leveraged Buyout (LBO)
They usually invest capital in large corporations compared to venture capital funds and have additional leverage to generate favourable returns when investing in an organization. The invested capital is also large compared to venture capital. If the company lends a large amount of money in the form of loans and bonds, it will be purchased to promote the acquisition of other companies.
Real Estate
Companies that raise capital to develop, acquire, operate, and sell buildings to generate returns for their investors are called private equity real estate companies. Like a general private equity company, real estate private equity firms raise money from that are a pension fund, a university basis, and an insurance company. Real estate funds are investing funds for real estate property.
Growth capital
In a mature company, a company that invests in generally successful business models invests a growth capital private equity fund, expands new markets, rebuilds business, or invests funding for larger acquisitions. Growth capital is usually investing that the company invests in is basically a large profit-making company.
Fund Of Funds
It is an investment strategy in that funds are invested in other funds. It does not invest directly in stocks, bonds, and securities, but is invested in other funds. In order to invest in multiple fund strategies enclosed in the portfolio, we have advantages for investors to diversity. There are various types of means, working on various investment systems accordingly. A hedge fund that can incorporate mutual funds, private equity, mutual funds, and fund of funds.