Know The 9 Types Of Private Equity Simply Explained
- June 22, 2023
- Posted by: mistrymehta
- Category: Equity Advisory
Private Equity(PE) is money invested into companies that are not publicly traded. Private equity investments offer a broad range of opportunities. Investors can invest in promising start-ups or revitalize a struggling brand. Private equity appeals to investors looking to earn better returns than what can be achieved through investing in stocks.
Private equity fund are considered “alternative” investing opportunities compared to buying stocks or real estate properties and other assets that have long-term growth potential. Learn more about the nine types of private equity funds below.
1. Leveraged Buyout (LBO) A leveraged buyout fund strategy combines investment funds with borrowed money. The purpose of the fund is to buy companies and make them profitable.
2. Venture Capital (VC) Venture capital deals with funding early-stage start-ups and new businesses. Venture capitalists invest in companies that they believe have high growth potential.
3. Growth Equity Growth capital invests in mature companies looking to grow their business by entering new markets or buying other companies.
4. Real Estate Private Equity (REPE) Real estate private equity funds invest in properties using different strategies, the funds invest in land or speculative development deals, used of fund to buy, develop, and operate properties.
5. Infrastructure The infrastructure businesses are stable and generally operate for decades, businesses, like airports and utility companies, have monopolies in their services, which makes them incredibly valuable.
6. Fund of Funds A private equity fund of funds raises capital from investors but doesn’t invest in private companies or assets. Instead, it acts as an investor and buys into a portfolio of other private equity funds.
7. Mezzanine Capital The mezzanine capital is halfway between debt financing and raising equity capital. Companies typically use it to raise funds for specific projects. This type of private equity is a hybrid form of financing that aims to earn a higher rate of return than debt and carry a lower risk than equity financing.
8. Distressed Private Equity Distressed private equity funds, as special situations, specialize in lending to companies in financial crises, their purpose is to take control of the business during the bankruptcy or restructuring processes so they can buy the company at a lower purchase price.
9. Secondaries the Secondaries funds, the secondary market exists to buy investments committed in a fund. If an investment hasn’t reached the harvesting period but an investor needs or wants to take their money out, the only way to do that is to sell through the secondary market.