Why Private Equity Is a Good Source Of Income

by Ankita Sehgal Freelance Blogger, Lives in New Delhi

‘Private equity’, this very term evokes admiration, envy, and fear in the minds of CEOs. Through the right acquisition targets, private equity firms have been able to pocket huge sums of money in past few years.

Amidst rising interest rates and extensive government scrutiny, the private equity funding market shows no signs of looking back as it promises the high return on investment.

The private equity market can be divided into two camps Camp one consists of corporate turnaround specialists and financial engineers who buy companies from the public market. Camp two consists of venture capital firms that help fast-growing businesses by funding them capital.

The prime reason why investors find the private equity market appealing is because it guarantees good ROI, even from the illiquid asset class. It’s astonishing how private equity firms have outperformed the public stock market in past few years.

The wave of private equity investment does not seem to recede. The distinct leverages of buy-to-sell and the lessons it provides to the newly bought company are here to stay for a long time.

The reason why private equity firms deliver consistent performance is that they are under a constant pressure to perform. A business unit, which is a part of the public portfolio, may perform adequately but it’s generally not on the priority list of senior management.

In the case of private business units, it’s comparatively easy to create incentives for fund managers so that executives can keep the business running. Work cannot be managed in such seamless fashion in case of a public business unit.

The market for private equity is here to proliferate and will continue to lure business leaders because it guarantees profits. In order to be on par with private business units, the public companies need to overcome their traditional barriers. By making further amendments on buy-to-sell strategy, the public companies can gear up for more profits.

Private equity market can only become a much more efficient market when it is able to create greater competition. The world of investment and marketing is undergoing great transformational phase and only those are likely to survive who understand the value of private equity investment.