A private equity firm is a specialist venture company that invests in private businesses by purchasing their equity, or shares. Private equity firms are also known as venture capitalist or private equity investors. They are heterogeneous organisations that differ in their resources, strategies and objectives. The few features that they share in general are their objective on nurturing companies with management, and capital assistance with the objective of increasing the value of their invested funds many times over. Sectors private equity firms frequently invest in include computer hardware and software, semiconductors, biotechnology and communication.
Independent Private Equity Firms
Independent private equity firms are companies that work separate of their fund-supplying investors.
According to Ruth Bender and Keith Ward in the book "Corporate Financial Strategy," independent private equity funds are the most traditional way of raising private equity capital. Sources of capital include governments, large corporations, wealthy individuals, pension funds and banks. Examples of independent private equity firms in 2010 include the Texas Pacific Group, Bain Capital, Apax Partners and Kohlberg Kravis Roberts.
According to a report published by the Organization for Economic Co-operation and Development titled "The SME financing gap, Volume 2," approximately 80 per cent of all private equity firms in the United States are independent.
Captive Private Equity Firms
Captive private equity firms raise funds and capital from their primary shareholders and/or a parent company. Shareholders are typically financial institutions (insurance companies or investment banks). Captive private equity firms are those whose management structure is characterised by a great degree of effective control and involvement by a primary investor. The lead investor, according to James M. Schell in the book "Private Equity Funds," directly controls and manages the pool of private equity funds, and retains complete control over it. Barclays Private Equity, Allianz Private Equity Partners and Morgan Stanley Capital Partners are examples of captive private equity firms.
Semi-Captive Private Equity Firms
Semi-captive private equity firms raise capital from both outside investors and their main shareholders. They combine the two approaches employed by independent and captive private equity firms--investing some of their parent companies funds, and externally raising more funds. EQT is an example of a semi-captive private equity firm, which raises capital from its primary shareholder, the Wallenberg family, and from external investors.
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