Private Equity

Introductionthrough IPOs on the European Stock Exchanges in
Private equity is medium to long-term financethe same period. European private equity and
provided in return for an equity stake in potentiallyventure capital provides a vital source of finance for
high growth unquoted companies. Private equity isn'tgrowing companies across all industry sectors.
new-it's been around in various forms for almost 25European focused funds account for 26% of the
years, including the Barbarians at the Gate-styleglobal total, whilst funds focusing on Asia and the
hostile takeover of RJR Nabisco by Kohlberg KravisRest of World account for the remaining 11%.
Roberts (KKR) in 1989. Private equity is booming,Blackstone
with buyout firms poised to raise more than theBlackstone took itself public on June 22; its IPO, the
previous record of $215 billion, set in 2006. Privatelargest since 2002, raised $4. Blackstone's
equity is a broad term which commonly refers to anyperformance has even been worse than that of
type of non-public Ownership Equity securities thatFortress Investment Group, a manger of private
are not listed on a public exchange. Private equity isequity and hedge funds that went public in February.
very much a 'people' business and the investmentBlackstone is the largest private equity company in
professionals involved and their interaction as a teamthe world. Blackstone's real estate holdings have done
will be a key in determining the return on the fund.even better - up 29% per year since 1991.
Private equity is generally accessed by companiesBlackstone set a record in 2006 by completing $101
that do not have the operating history or trackbillion in buyouts, amid historic levels of fundraising and
record to access lower cost capital alternatives, butdeal activity in the U.S. Blackstone, like many other
need capital for growth or expansion. This equity isprivate equity firms, has made much of its money in
neither a silver bullet nor a dark force.the buyout business-acquiring undervalued public
Buyoutcompanies using borrowed money, taking them
Buyout houses are raping the public markets. Buyoutprivate, improving them, and reselling them at a
groups are just like the old conglomerates. Buyoutsprofit. BLACKSTONE'S RECENT $39 BILLION
have generated a growing portion of private equityacquisition of Equity Office Properties Trust showed
investments by value, and increased their share ofthat few deals are too large for this new breed of
investments from a fifth to more than two-thirdsinvestor.
between 2000 and 2005. Buyout and real estateInvestor
funds have both performed strongly in the past fewInvestors in private equity funds include wealthy
years in comparison with other asset classes such asindividuals, insurance companies, college endowments
public equities, certainly a factor in the bumperand pension funds.
fundraising that both have enjoyed of late. BuyoutConclusion
people who were kings of the hill and masters of thePrivate equity is responsible for 1 in every 5 dollars
universe were suddenly seen as normal people.spent. Private equity is an investment asset class
Europeandescribing private investments in privately held (as
European venture capital is showing a steady increaseopposed to publicly traded) companies. Private equity
in the number of successful VC-backed companiesis a favored asset class for professional managers
and notable exits. European private equity fundraisingbecause it has historically produced superior returns.
has passed the 100 billion threshold to reach 112 billionPrivate equity is interested in the longer-term
in 2006 only, similar level to the new capital raisedperformance of the company.