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Private Equity



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In business magazines, we often hear the word called Private Equity, also called PE (and not to be confused with the PE Ratio)

Private equity is an asset class consisting of equity securities and debt in companies not quoted on a public exchange.

Major types of PE include venture capital, buyouts, mezzanine capital, and distressed (turnaround) investments.

Though all these types of financial projects come under the broad unmbrella of Private Equity, there is a small subtle difference between them.

A Venture capital refers to equity investments made, typically in less mature companies, for the launch of a seed or start-up company, early stage development, or expansion of a business.

By contrast, a buyout involves investments in mature companies that require financing to pursue growth opportunities. A buyout involves a group of investors acquiring a target company from its current owners with the help of equity finance from a PE provider and debt finance from financial institutions.

Mezzanine capital refers to subordinated debt or preferred equity securities that often represent the most junior portion of a company’s capital structure that is senior to the company’s common equity.

Distressed investments refer to investments in equity or debt securities of financially stressed companies.

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