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Private Equity firms

Private equity firms can be related as a medium to provide long-term finance to companies who want to grow and succeed. This long-term provision of finance is provided with the aim of acquiring an equity stake in potentially high growth companies. There is a major difference between obtaining a loan from a lender (bank) or dealing with private equity. Legally speaking, the lender has the right to earn interest on the loan and recover the capital, irrespective of the success or failure. In the case of private equity, the investment is made in exchange for a stake in the company and as a share holder, the investor’s returns are based on the growth and profitability of the business. To rate the standard of a business entity, the business show signs of aspirations and potential growth, rather than by their current size. The main aim of a business should be to grow rapidly to a significant size. A private equity firm will show interest in a company only if it shows significant turnover growth prospects within five years. Private equity investors will get attracted to those companies who show signs of high growth potential.

Private equity fund investment is meant for those who can effort to block their capital for a longer duration of time and who can effort losing, take the risk of losing significant amounts of money. Mostly, private equity funds are given to institutional investors and to those who are substantially worth. This step is taken as per the law. Also, private equity funds are mostly less regulated compared to ordinary mutual funds. The time spend by a private equity firm to raise capital will vary, depending on the level of interest amongst investors for the fund, which depends by the current market conditions and also the over all record of previous funds raised by the concerned firm. Firms may go to the extend of spending one or two months raising capital in order to reach the target of the set funds. Once a fund has reached its fundraising target, it will have a final close down. At this stage, no new investor can invest in the fund. Private equity firms are not obliged to publicly reveal the returns from their investments. Hence, it becomes difficult to track their investments. It also becomes difficult to track the performance of private equity funds. Mostly, groups who have the knowledge of fund performance would turn up to be investors in the funds. The performance of the private equity industry differs between funds of different types.

Private equity funds, like to do their business privately. The main reason for this is because private business provides them better flexibility. Private funds always invest in unlisted companies. If the company is already listed, they get the company de-listed and then the acquisition takes place. One can enjoy the advantages involved in an unlisted company. Firstly, there is no need for an unlisted company to make many disclosures. In other words, an unlisted company may not be required to publish its quarterly results. There are no listing rules to be followed. The long-term performance by the company is responsible for the value of the investment. Private equity firms can easily focus on long-term goals. It is for this reason that private equity funds prefer to invest in unlisted companies.