Private Equity, or Capital investment in French, is a branch of finance that involves investing in companies that are not listed on the stock exchange. We also talk about investment in the so-called real economy.
Private Equity is one of the sectors of finance that suffered the most from the 2008 crisis. A real questioning took place on Private Equity and the way in which this sector should be regulated and monitored. However, the latter is not the most at risk and does not present a systemic risk. Indeed, it does not represent any liquidity risk, nor any risk of repayment default. And yet, many regulations have been imposed on it. Let’s see what this area of finance consists of and why it presents itself as a new alternative to traditional financing.
Read more : Olivier Millet (EURAZEO): 5 decades of experience in Private Equity (Welcome to Capital)
Private Equity is defined through several activities
Private Equity is the field of finance that deals with financing companies or start-ups at different stages of development. These companies are targeted and financed according to their stage of development. Different types of capital and aid are allocated to them.
- Venture Capital, or Innovation Capital: it concerns the financing of young companies or innovative start-ups with promising potential. We also talk about Venture Capital since these companies are still in the early stages of their development and investors can only expect a return on investment in several years. During this period of growth, the investment fund is involved in the development of the company to provide it with advice and strategic support in order to ensure sustainable growth that matches its potential.
- Development Capital: this funding is intended for SMEs that are already established but have difficulty in developing more significantly. These are often SMEs wishing to expand internationally, open new branches or strengthen their team. They are unable to obtain a loan from their bank and are therefore more open to financing from investment funds.
- Turnaround Capital: this is the capital allocated to companies undergoing restructuring, which are in financial difficulty. In order to target these companies, investment funds identify value creation levers that have not been exploited by the current management. The objective is to carry out an internal restructuring that will allow the company to regain good growth.
- The Transfer Capital: this capital is allocated to companies when there is a change of ownership. This moment is crucial for a company and can just as easily allow it to grow exponentially as sink it. This is why funds are used to allow the new owners to ensure the sustainable growth of the company. This type of capital is used in most cases during LBOs (Leverage Buy Out), which correspond to the acquisition of a company using debt capital.
Private Equity gradually recovered from the 2008 crisis and, between 2010 and 2013, approximately 80% of fund unit sales resulted in a resale greater than the capital initially invested. It can now claim to be a real alternative to traditional markets.
Rich and rewarding job opportunities and outlets
Unlike M&A, turnover is much less present in Private Equity. Indeed, the schedules are more variable, and therefore can be less restrictive than in M&A or in investment banking. This also explains why it is more difficult to find a place there.
Read more : M&A, what is it exactly?
The “typical” career in Private Equity is to start as an Analyst in an investment fund, then to evolve as an Associate. The best will then become Investment Director, then Partner. The salary also varies according to the position. A young graduate can claim a salary of more than €100,000 (fixed + bonus) and this amount can exceed €500,000 for a Partner. Although salaries vary according to the size of the structure and the type of investment practiced, Private Equity remains one of the best paid areas, right out of school.
Read more : Fanny PICARD (ALTER EQUITY): Pioneer of impact investing (Welcome to Capital)