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What is a private equity

Posted Date: 19-04-2023 Posted By: user

When an entity is not listed or traded publicly, ownership or interest in this entity is called Private Equity or PE. The source of investment capital in such entities comes from HNW or High Net Worth Individuals or firms. They purchase stakes in private companies, or they acquire control of public companies with plans to take them private. Thus, the companies get delisted from the stock exchanges.

In light of npa in india, the regulations and controls on such entities have become stringent. All investors, primarily institutional investors, need to follow the guidelines and work process guided by regulating authorities.

Since PE entails direct investment, it is influenced by external aspects.  Also, these companies get influenced by the operations. Sometimes, you need a significant capital outlay. This means, the investors need to have deep pockets.

It is obvious that such a high need for funds will put profitability under pressure. And that is the reason  npa financial services are supposed to keep a close watch on the top and bottom lines.  They have to control NPA.

What is the minimum amount of capital required for accredited investors in the case of PE firms? Well, it depends on the firm and fund. It can be from a million rupees to millions of rupees.

What makes people choose this model? The underlying motivation is to earn a positive ROI (Return on investment). All partners in a PE firm raise money and manage it to earn favorable returns to all shareholders.

The investment horizon in a PE is around five to eight years.

Types of Private Equity (PE) Firms

Private equity (PE) firms have many investment preferences. Some are passive investors who are dependent on the growth of the company to generate returns. Because sellers see this as a commoditized approach, they are considered by private equity (PE) firms as active investors. The meaning is that they offer operational support to management so that growth can be assured.

The funds offered in private equity (PE) firms are accessible to only accredited investors. It may be allowed to only allow a limited number of investors. The founders of the fund will usually take a rather large stake in the firm. Hence, it is important that npa financial services keep a close eye on the financials.

Active private equity (PE) firms may have an extensive contact list. They have relationships with top management, like CEOs and CFOs within a given industry. It helps in bringing growth and increasing revenue.