Emerging Private Equity Finance

"You could almost say academics, that information is a valuable resource: knowledge is power." - G. Stigler "The Economics of Information"

The strength of the recent boom in private equity that many analysts fear that a growing percentage of U.S. gross domestic products is moving "from the radar." Given that private investors have no obligation to share information in the way the company uses, these analysts fear that the data obtained opacity increases the risk of unexpected economic shocks.

Equity refers to investments in assets are not available for public trading. Almost all small and medium-sized enterprises are organized as private companies, but diluted in the environment of the nation's largest organization of public companies.

Private equity firms access to public company with an offer to buy the company and taken private, they are usually a significant premium to the market value of the company. For example, when private equity firm KKR bought First Data of more than $ 25 billion, this means a 26% premium above the market price for the shares of the company.

Private equity firms are capable of a company, public or private, but many of the larger companies, which focus on buying distressed companies that have recently undergone difficulties. This so-called increase in employment is a major source of acquisitions in recent years. Two giants of private equity, Blackstone and Bridge Center is involved in the bidding process Frenzy for the ailing Chrysler arm of Daimler Chrysler. Chrysler lost more than 1 billion dollars last year, but DaimlerChrysler will receive more than 6 billion U.S. dollars for the company.

Although to private equity investments carry own risks, but also uniquely suited to reward larger economy. Share the ability to look beyond the daily movements in the price and focus on building long-term increased risk. When TXU private equity consortium bought the firm, austere energy giant has changed its culture. The company set aside plans to build coal-powered plants, and now operates the largest nuclear facilities in the United States. This change in the safe investment for a much riskier operation can only take place through private equity.

The real concern about private equity, but the high indebtedness of the company gained leverage the investment of the clients. This so-called leveraged buyouts result in the company with a large amount of debt. A risk society is still not the fault of the economic recession is not a small thing. IMF publicly warned regulators around the world to pay attention to the increasing levels of private debt.

All these concerns notwithstanding, private equity is clearly the way to the future. The reason is clear - huge profits are possible. When Google bought DoubleClick for 3.1 billion U.S. dollars, it is also possible for private equity business of the investment is paid for the $ 1.1 billion, only a few years ago. These significant profits will attract an increasing share of the investment world.

The global economy is increasingly a growing private economy. New risks in this changing landscape, but the rewards for success will be considerable.