There are a lot of terms that seem to be used interchangeably on Wall Street. There are new investment vehicles being made all of the time that are hybrids meant to meet the specific needs of the client. Gareth Henry recently talked about the alternative investment class known as Private Equity. The funds in private equity are directly invested in companies, usually a public company that is bought out. This causes the publicly traded company to be delisted from the New York Stock Exchange.
There are also private companies that take part in private equity when they are startups. In addition, there are rare cases when a public company uses private equity, but this is usually when they create an IPO. Companies are able to do a lot with the capital they receive from private equity such as making acquisitions, funding new tech, and solidifying balance sheets. Gareth Henry understands the many benefits that private equity can have for companies. Read the article at institutionalinvestor.com
Gareth Henry believes that there are a lot of reasons why some companies are turning away from being publicly traded. The compliance costs and regulations surrounding being a publicly traded company are getting to be a lot more complicated and difficult to comply with. It can cost millions to stay compliant with these new regulations and many companies don’t have that type of capital to spend at the time. In addition, it costs around $750k to do an initial public offering and the process can take a year and a half. The process is so arduous that many companies don’t complete the process and lose the money they have put into it.
In the last 3 decades, private equity has become more and more common in the business world. Gareth Henry states that they are Limited Partners with private equity funds. Limited partners have limited liability but own all but 1% of the fund. The General Partners only own 1% but hold full liability. The general partners are responsible for the operations of the fund. Limited partners still could face losses, but they are limited based on how much was invested.