Private Equity facilitates an investment mechanism in shares of companies that are not traded publicly.
For example, ICICI Venture is one of the largest and most successful private equity firms in India with funds under management to the tune of $2 billion. It has invested in many start-ups and provided capital at a nascent stage of growth.
Private equity investors invest with a long term horizon and also provide valuable management expertise to run a company. Many companies are extremely successful because of private equity investors.
Once a company reaches a mature stage, a private equity investors may ask the proposed company to list its shares and might offer its own equity holding through an offer for sale.
Private equity is all about investing in an idea, where the promoter may not have the financial muscle to fund an attractive business proposition.
Benefits of Private Equity
- The companies that are under private equity firms are made more efficient and produce higher profits, which not only benefits private equity firms, but also the company. These firms have skilled people to manage the company and correct the ineffective sections and help the company from further declining.
- Managers and staff are motivated as management receives carried interest, and part of profits. This encourages staff to produce good yields.
- These firms need not follow the same transparency standards which are followed by public firms.
- Private equity firm are highly paid so it's easy to fetch high caliber and experienced managers that tend to perform well.