Private Equity in a Nutshell

By Marc Castro

Feb 24, 2013 02:14 PM EST

Private equity is simply a class of assets that include equity securities in operating companies that are not bought and sold in the stock exchange. An investment of this nature would be spearheaded by either a private equity firm, a venture capitalist or a mixture of both. While each of these groups would have their own agendas, preferences and strategies, all would be infusing financial capital into a company. The infusion would either help the company expand, create new products or restructure existing operations.

Private equity firms were previously known as leveraged buyout firms of the 1980s. There are many strategies that these firms employ, but the most common one is a leveraged buyout, hence the name. Here, a private equity firm would purchase majority stake in an existing or mature firm. On the other hand, a venture capitalist would invest in a young up and coming company and only takes a minority stake. 

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