Private equity is an alternative asset class, generally comprising equity investments in unlisted companies. It plays a vital role in growing companies in many countries and industries.

The money invested is normally derived from a pooled fund of longterm institutional investors, such as pension funds, endowments, banks or insurance companies. As with many alternative asset classes, private equity strives for a high absolute return for investors, with limited correlation to the public equity market or other security markets. Private equity usually provides medium- to long-term committed
capital, which helps companies to grow and become successful to the benefi t of all stakeholders.

There are four principal styles to private equity investing:

• Venture Capital finances new companies that have little or no revenue. This is common in the life science or technology sectors for example.
• Expansion Capital helps companies grow. They may need help to finance a new factory, a rapid geographic expansion or to develop new product lines.
• Buyout means acquiring a controlling interest in a more mature company. The acquisition often entails a complete change in ownership and applying new strategies to add value to the company.
• Special Situations involve investment in a distressed company, or a company that faces special challenges. In all these cases, the private equity fund is seeking a high-quality management team and a strategic plan to grow and improve the business. In many situations, the private equity fund will finance an investment partially with debt, to limit the capital requirement and to leverage the returns. Private equity investors usually invest for the long-term and seek sustainable improvements in the operations of the business.
  

There are four ways for a private equity fund to obtain return on an investment:

• IPO (Initial Public Offering), floating part of or the whole company on a public stock exchange. The private equity fund often stays on as a substantial owner for a period of time.
• Trade Sale in which the company is sold to an industrial buyer.
• Secondary Sale in which the company is sold to another financial investor.
• Recapitalization in which the balance sheet is restructured to facilitate a large one-off dividend to the owners.