It is a medium to long-term finance provided in return for an equity stake in potentially high-growth unlisted companies. Private equity investments are usually made in order to ensure a turnaround for distressed companies or to enable liquidity events such as an initial public offering or a sale to a public company. It plays a significant role economic growth by creating jobs, generating returns for its investors and thus building better businesses by creating real value.
A private equity firm is called a general partner (GP) and its investors that commit capital are called limited partners (LPs). Private equity investment comes primarily from institutional investors and accredited investors, who can dedicate substantial sums of money for extended time periods.
Private equity firms will typically look to hold investments for between four and seven years, at which time they will look to sell, or ‘exit’, their stake, either on the stock market, to a corporate buyer or to another investor.