Private Equity in China: Challenges and Opportunities

CHAPTER 1

Private Equity: An Introduction

This chapter provides the reader with an overview of the basic fundamentals of private equity as an asset class. In addition, the reader will be introduced to the Inventis Private Equity Model, which encapsulates the workings of private equity from entry to exit. This is particularly useful as it provides a model for readers to apply throughout subsequent chapters of the book. Readers who are familiar with the basics of private equity may skip this chapter.

OVERVIEW

Private equity is an asset class consisting of equity securities in companies that are not publicly traded on a stock exchange. Private equity consists of long-dated capital commitments from its investors aimed at achieving long-term value creation through active management of the invested companies in order to achieve higher investment returns than the public markets. Private equity funds are typically deployed to invest in companies in control or quasi-control situations. This differs from public equity that consists of capital that is invested in liquid markets and can be redeemed in a short time period. Public equity funds are typically characterized by a passive approach to shareholder governance. Private equity firms can invest in public companies through private-investments-in-public-equity (PIPE) deals.

For purposes of this book, private equity investments will refer to investments made in firms that are in the expansion-to-maturity stage. This delineation is important ...