Description
Private equity is an alternative investment class and consists of capital not listed on a public exchange. Private equity is composed of funds and investors who directly invest in private companies or engage in buyouts of public companies, resulting in the delisting of public equity.
Instrument category
Equity financing
Implementation status
High - much evidence available
Enabling conditions and success factors
- Bankable projects should be available.
Instrument benefits
- Allows companies to access liquidity as an alternative to conventional financial mechanisms.
- Certain forms of private equity, such as venture capital, also finance ideas and early-stage companies.
Challenges and risks to implementation
- It can be difficult to liquidate holdings in private equity because, unlike public markets, a ready-made order book that matches buyers with sellers is not available.
- Pricing of shares for a company in private equity is determined through negotiations between buyers and sellers and not by market forces.
- The rights of private equity shareholders are generally decided on a case-by-case basis through negotiations, which might not reflect a market value.
