Introduction to Private Equity: Venture, Growth, LBO and Turn-Around Capital, 2nd Edition

Foreword to the Second Edition

Private equity can be described as ‘investments in private companies in privately negotiated transactions’. This means that private equity is an asset class that is normally opaque, illiquid and very often difficult to analyse.

However, private equity investing offers many advantages compared to investing in public and liquid asset classes. The underlying companies can be acquired in a transaction that does not have to be publicly announced or explained, many times also using an inefficient process leading to an attractive investment. Privately owned companies can be developed without public scrutiny for long-term success. Public companies normally have quarterly reporting requirements and are therefore only targeting short-term benefits. The fund managers who are active in private equity normally have much more information at hand when they make investment decisions compared to investing in public companies. The incentives to management can be fully aligned with the investors, and the fund managers can have tighter control of the companies and can develop them aggressively without having to worry about how every decision is understood by the public markets. Through private equity investments, investors can also possibly invest in industries or niches where there are no public companies.

Private equity is a very complex asset class. Private equity investing is more of an art than other investments that can be analysed and compared quantitatively. ...