Private equity investment is on the rise in the UK, and the results are proof positive that this can only be a good thing overall.
Private equity investment rose by 37% in 2007, according to the British Private Equity and Venture Capital Association and PricewaterhouseCoopers.
“The latest figures demonstrate that the UK is increasingly the gateway to the whole of Europe and the most important centre for the private equity industry outside the U.S.,” says BVCA Chief Executive Simon Walker.
The BVCA also reports that private equity investment has proven itself to outperform similar areas such as bonds and equities over three, five- and 10-year periods; the net annual returns raised by private equity through the end of 2005 came to 16.4% over 10 years, 11.9% over five years, and 21.1% over three years. Indeed, since the 1970s the size of the private equity market has grown relentlessly larger. 2006 and 2007 saw several private equity purchases in excess of $30 billion US.
As a result of private equity’s proof being in the pudding, syndicates which pool investor money are becoming increasingly popular. In the UK top private equity syndicates include Braveheart Ventures, pi Capital, Hotbed, and MMC Ventures.
Although private equity investment comes with higher risks involved, the potential for greater upside rewards is overtaking risk fear more and more. Rob Ioannou, who is the director of the wealth management and investment group at HSBC Private Bank, says of those who opting for predominantly private equity investment over bonds, institutionalized stock investment, or mutual funds, “In many cases, these clients have had first hand experience of private equity having disposed of their own business which was backed via this route…Because of our open architecture approach, we also look at other ways to source private equity. We have a tremendous network of clients who are themselves entrepreneurs. That frequently offers access to good deals.”
According to Investopedia, “Private equity consists of investors and funds that make investments directly into private companies or conduct buyouts of public companies that result in a delisting of public equity. Capital for private equity is raised from retail and institutional investors, and can be used to fund new technologies, expand working capital within an owned company, make acquisitions, or to strengthen a balance sheet.”
When a company is bought out by private equity investors, those investors then try to improve the company’s prospects and performance. They want to do this with an eye toward being able to re-sell the company for a greater profit or else cashing out with an IPO.
Private equity venture capital doesn’t seem to show any end in site to its rise. The financial rewards and the personal satisfaction that this type of investing offers are too powerful and tempting.
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