Private equity is medium to long-term financing provided in exchange for an equity investment in potentially high-growth unlisted companies. Private equity isn’t new — it’s been around for nearly 25 years in various forms, including Kohlberg Kravis Roberts’ (KKR) hostile takeover of RJR Nabisco, barbarian-at-the-gate style in 1989. Private equity is booming, and buyout firms are poised to raise more than the previous record of $215 billion set in 2006. PE is a broad term that generally refers to any type of non-publicly owned equity securities that are not listed on a public stock exchange. PE is very much a people business and the investment professionals involved and their interaction as a team will be a key factor in determining the fund’s return. Equity is generally accessed by companies that do not have the operating history or track record to access lower cost capital alternatives but need capital for growth or expansion. This justice is neither a silver bullet nor a dark force.
Buyout houses are raping the public markets. Buyout groups are just like the old conglomerates. Buyouts have generated a growing portion of private equity investment by value, increasing their share of investment from a fifth to more than two-thirds between 2000 and 2005. Buyout and real estate funds have performed strongly in recent years relative to other asset classes such as public stocks, certainly a factor in the record funding both have enjoyed of late. Buyout people who were kings of the hill and lords of the universe were suddenly seen as normal people.
European venture capital is seeing a steady increase in the number of successful VC-backed ventures and notable exits. European private equity fundraising has surpassed the 100 billion mark, reaching 112 billion as recently as 2006, a similar level to new capital raised through IPOs on European stock exchanges over the same period. European private equity and venture capital is an important source of finance for growing companies in all sectors. Europe-focused funds make up 26% of the global total, while funds focused on Asia and the rest of the world make up the remaining 11%.
Blackstone went public on June 22; its IPO, the largest since 2002, raised $4. Blackstone’s performance even underperformed Fortress Investment Group, a private equity and hedge fund manager, which went public in February. Blackstone is the largest private equity firm in the world. Blackstone’s real estate holdings have performed even better — up 29% a year since 1991. Blackstone set a record in 2006 by making $101 billion in buyouts. It made much of its money in the buyout business — acquiring undervalued public companies with borrowed money, privatizing them, upgrading them, and selling them on for a profit. BLACKSTONE’S RECENT $39 BILLION acquisition of Equity Office Properties Trust has shown that few deals are too big for this new breed of investor.
Investors in private equity funds include wealthy individuals, insurance companies, college foundations, and pension funds.
PE is responsible for 1 in every 5 dollars spent. Private equity is an asset class that describes private investments in privately held (as opposed to publicly traded) companies. Equities are a preferred asset class for professional managers because of their excellent returns in the past. PE is interested in the long-term performance of the company.