Introduction to Private Equity

4

The Universe of Investment

Private equity belongs to the world of finance, even though it remains far from being only a financial asset class. The analysis of the universe of investments shows the specific nature of private equity, which is probably the only financial instrument able to follow a company through each of the steps of its existence. Moreover, whether in the investment process, the methods of investment or in investment monitoring, what distinguishes private equity is the importance of the qualitative analysis over quantitative data. In that respect, individuals are really the core component of private equity (see Chapter 5).

Private equity offers a financing solution through equity or quasi-equity, from creation (see section 1), to development (see section 2) and restructuring of a company (see section 3). The border between different sectors of investment is relatively undefined. For example, venture capital funds and growth capital funds can sometimes invest together in the same company. In some respects, growth capital and LBO can also appear to be closely related.

Table 4.1 shows that private equity, notably the fund of funds activity, is relatively new in Europe. The oldest active fund of funds manager (a merger of two fund of funds managers) had its 30th anniversary in 2009. This means that the emergence of the fund of funds industry is correlated to the financial liberalisation which happened in Europe in the early years of the 1980s.

As for the dynamic ...