Private Equity

Brief facts

‘Public Equity’ is an umbrella name for publicly quoted shares, i.e. shares that you can buy on a public exchange; for example, Unilever on the London Stock Exchange.  In contrast ‘Private Equity’ is a name for a form of investment in companies that are not publicly-quoted.

A rich individual investor might band together with other rich investors to buy a company.  This would be called a private equity investment and the owners of the company would be described anonymously as ‘private equity’.  Taking this a step further, these rich individual investors might set up a fund to buy many companies, putting in their own money and raising additional money for the fund from other investors like you and me.  For ordinary individual investors, ‘investing in private equity’ means ‘investing in a private equity fund’.

Is it a good thing?

Private equity is a good sign of a healthy capital market.  It puts pressure on public companies to perform and allows rich entrepreneurs to apply their talents in activities which they couldn’t otherwise reach.

Is it a good investment for an individual saver?

Possibly.  But you need skill to pick the good funds and an understanding of the consequences of giving up the protections offered by the public markets.  And if you’ve got that skill you don’t need to be reading this.

Does it offer diversification?

No.  It’s just a different ownership and fund-raising method.  An investment in Widgets PLC carries the same operational risks whether it’s publicly or privately owned.

Our view

You have a vast range of public equity investments to choose from.  Why give up the legal and regulatory protections such investments provide?  They are there for a reason.