Private Equity – Institutional Investment in Business

Introduction

Private Equity (PE) refers to capital investment made into companies that are not publicly traded on a stock exchange.

1. How PE works

1. Fund Raising: PE Firm raises money from HNIs, Pension Funds, Endowments (Limited Partners).
2. Investing: They identify private companies with high growth potential.
3. Evaluating: They invest large sums (Growth Capital) in exchange for equity.
4. Exit: After 5-7 years, they sell their stake via IPO or sale to another company.

2. Strategies

1. Growth Capital: Investing in a mature company looking to expand (e.g., PE investing in Lenskart).
2. Buyout: Buying the entire company to take control (e.g., Blackstone buying Mphasis). Usually involves LBO (Leveraged Buyout).
3. Distressed Funding: Buying trouble companies cheaply to turn them around.

3. Difference: PE vs Public Equity

Summary

• High Risk/Reward: Long lock-in risk.
• Active Role: PE firms usually take board seats.
• Exit: IPO is the dream exit.

Quiz Time! 🎯

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