You must have heard how investors use private equity to gain better returns than public equity funds. But there are many other factors associated with this term that you would want to know.
To put it in simple language, investments made in private equity funds help a company to expand its business. Several types of private equity funds help in adding to the growth of small and medium-sized organizations. They also contribute actively to the economic development of a country.
What is a private equity fund?
Before we find out more about private equity investments, let us understand what a private equity fund is.
A private equity fund is a collection of money invested in an organization that gives the probability of gaining a high rate of return.
Institutional investors can put funds together and invest in private equity funds, as they can afford to invest a substantial amount of money for a prolonged duration. And a team of investment professionals manages these funds in a particular private equity firm.
What are private equity funds?
Here are several private equity funds.
Venture capital is a pool of money invested in startups or small businesses with limited or no access to other forms of capital investment.
Venture capital investment forms a source for brand-new companies to get enough financial support. This investment allows the organization to expand its research and business enhancement plans.
Buyout or Leveraged Buyout:
The buyout or leveraged buyout is a fund invested in more mature or established companies with further leverage. The amount of money invested in this type of private equity is much more than venture capital.
A leveraged buyout occurs when one company wants to acquire another company by borrowing the capital. And this leveraged buyout comprises debt to pay for the acquisition.
The real estate market is also a field of private equity fund investment. In this type of fund, you invest the money in different real estate properties, varying from single-family homes to commercial spaces.
This type of private equity fund has its benefits as it allows ownership control, allowing the owner to follow investment strategies they find rewarding. Steady growth and valuable returns are the benefits of this form of investing.
Growth capital funds:
This private equity fund invests the capital in mature and well-established companies. These companies have excellent business potential, and they expand their company through the acquired funds.
Fund of funds:
The “Funds of funds” are a group of investment funds that invest the money in other funds. This type of private equity investment has less risk as you invest in various securities.
The private equity funds aim to assist emerging and established organizations achieve their business goals. They are beneficial for the investors as they gain valuable profits from the company.
There are many more terms associated with private equity funds. To learn more, read on, ‘What is a private equity fund?’