Private equity is the term which refers to money (capital) invested directly into private companies (those which are not listed on any stock exchange) by individual investors or funds.

Private equity is often used to buy out public companies (those listed on stock exchanged) and delist them. Perhaps in a management buyout situation. Typically capital for private equity is raised from very wealthy individuals and institutional investors and is used to fund new technologies, expand working capital, make acquisitions, or strengthen a company’s balance sheet.

The majority of private equity consists of institutional investors and accredited or qualified investors (rich people) who commit large sums of money for long periods.

Very often private equity is used to fund start-up companies with a view to developing them before listing on a stock exchange. At other times private equity may be used to buy a listed company and taking it private. Then steps are taken to improve the management and make the company more profitable before relisting on the stock exchange. It is easier –and cheaper – to carry out such reorganisations when a company is unlisted.

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Category: Guide to City Jargon 

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