Private equity is that capital that is not traded on public exchanges. Investments that are infused directly into companies by funds or investors is called private equity. Private equity firms also conduct buyouts by choosing suitable public companies. But, once they conduct these buyouts, these public companies automatically get delisted and so, they will not be able to go public any more. In general, retail as well as institutional investors pool up their funds and use these funds for funding new ideas or technologies. These funds are also used within their own companies as their working capital or for making acquisitions or for strengthening their financial status.
Uncertainty PE firms face
Though the concept of private equity began in the 1970s, they were highly popular before the sub-prime crisis struck the US. Even though a few years have elapsed after this crisis, the global economic environment after the downturn can’t be considered stable. Almost everyone has learned their lessons the hard way. This includes the private equity firms also. The main lesson these firms have learned is that they should not get carried away by the prevailing trends because unexpected twists and turns can happen at any time.
Current trends of Private Equity investments
If you look at the current trends of private equity firms in US, an amount of US$2.5 billion has been invested in US during the third quarter of 2012. 97 deals have got these investments. This shows an increase of 32% over the previous quarter but the deal volume has decreased to an extent of 8%. If you compare these figures with the corresponding period of 2011, you will observe that there is only an incremental increase in the value. But, the number of deals has come down by 20% when compared to the third quarter of 2011.
Out of the total private equity investments, an amount of $1,295 million has gone into IT and IT enabled services, $215 millions into the manufacturing sector, $200 millions into the banking industry, $165 millions into the Engineering and Construction, $164 millions into the Media and Entertainment, $138 millions into the Travel and Transport and so on. Among the total number of deals, 45 deals, that is the highest, have happened in IT and IT enabled services.
Trends That May Emerge
Some of the experts feel that the investor community ironically faces both hope and despair simultaneously. These experts feel that some of the policy announcements that have been made at the end of the quarter may lift the investor sentiments. Though this may not culminate into any increase in private equity investments immediately, it may bring the lost focus back on growth which may result in availability of more opportunities for the investors in the coming months.
Though the number of deals in IT and IT enabled services is increasing, the volume of investments has come down. A few other experts opine that start-up companies who have got private equity funds now may not have huge requirements because they are in the initial stages of their operations but their requirements are likely to grow in future. They often feel that the investor confidence in the manufacturing sector is also likely to grow due to some of the major policy announcements that have recently been made by the government.
So, it appears that there will be a positive turn-around in the near future. Since the investor sentiments are likely to get lifted, we can hope that more funds will be infused into companies that belong to various industries.
Adam Anderson works as a financial consultant in one of the leading financial firm. He believes people should invest their money instead of saving it. He says that while online payday loans are a great idea, people should be careful about sharing their financial details.