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The Most Important Information About the Private Equity Firms
Whats a private equity firm? When talking about investment companies, it is generally accepted to assume such an organizational form as a corporation. It includes an investment fund and the company managing this fund. Investment companies as corporations can be of two types:
- The investment company has its own management apparatus. In this case, the founders and the manager are participants in the investment fund. Such investment companies are called Management Investment Companies or Self-Managed I.C.
- The management company is external to the investment fund. In this case, a special company is hired to manage the investment fund – a management company. Such investment companies are called managed (Managed Investment Companies).
Surely, many have heard about one simple rule: money should not be a dead weight. To do this, you need to invest in various investment products. But investing on your own is troublesome and risky. This requires certain knowledge and experience. If the prospect of investing personally terrifies you, it is better to entrust money management to specialists, namely investment companies. As a result, platforms can be potentially important drivers for value-added e-commerce and private equity firms.
What functions do the private equity firms do?
- Operations for the purchase and sale of securities;
- Operations to distribute capital in different directions to reduce risks.
Private Equity vs Venture Capital
Private equity firms invest funds trusted by wealthy clients, as well as pension funds and other institutional investors. They concentrate money in the investment funds they create and manage (private investment funds) and then use it to buy out or acquire shares in various companies, as well as other types of investments. Private equity firms are not publicly traded and are not required to publish information about their investors and performance.
In the case of buying a business, the main task of such firms is to increase their profitability or value. After a reorganization, which is often accompanied by a change in management, and sometimes by divestitures and business splits, the acquired company can be sold at a high profit. One of the characteristic features of private investment firms is that they use bank loans to finance their transactions – up to 70% of the transaction volume.
Venture capital is a special, often high-risk type of investment where investors give money to small businesses with great potential. In this case, in exchange for the money invested, the investor usually receives shares in the company. Thus, venture capitalists get a say in future business decisions. Along with financial support, startups can also gain valuable managerial and technical expertise from VCs, as well as access to valuable contacts that can help grow their company.
The venture fund manager is called the General partner. His task is to raise a venture fund, find investors and attract money from them. Find the best startups, give money, help them grow, and raise income for investors. In addition to attracting foreign investment, there are also corporate venture funds. They invest part of the profits from their companies and distribute it to invest in external startups. Thus, part of the company’s profits goes to investing.