do both types of organizations just take other peoples money and put it somewhere else to have that money make more money? I get investments but i do not understand the point I suppose, nor do I understand the *need* for the difference. Is there really a difference????
In: Economics
Unfortunately the financial world is far more complex that you might imagine. There are many forms of private equity investments – they are a class of companies and exists for a variety of goals.
VC (venture capitalists) are a type of PE – investing in early businesses prior to public listing.
Turnaround specialists – buying distressed companies and engineering a business turnaround. Usually involving selling or closing divisions, paring down products, layoffs etc. The goal is returning the company to some kind of financial health.
Breakup specialists – buying distressed companies that have lots of underlying assets. Selling off those assets and then shutting down the rest. Generally speaking, not much of the company is left at the end.
The biggest feature is that private equity investments require total or near total control of the target company. It is more like an acquisition. This allows private equity, to make major changes to the company – sell off assets, remove the CEO and board, redirect strategy etc. Broadly speaking, this is high involvement, high risk but also potentially high gains. Although large PE firms might have multiple projects – each project is typically one company.
Hedge funds generally don’t take control over the companies they invest in. Hedge funds are pools of investor money used to invest in the public stock market – usually with some specific focus (healthcare, real estate, technology etc etc) The point here is to spread the investment around and any particular fund managed by a hedge fund might own shares in multiple companies.
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