The PE Market
During the last two decades, the global private equity market has experienced explosive growth. It has evolved from a cottage industry dominated by entrepreneurial individuals, into a fully fledged asset class with its own global institutions.
As the market has matured, two distinct investment strategies have emerged. ‘Venture capital’ is used to finance the formation and growth of early-stage companies. ‘Private equity’ refers to financing that is used to acquire significant stakes in larger, more established companies.
While venture capitalists have largely remained local players, concentrated around hi-tech hubs, the biggest private equity or buyout groups have embraced the inter-connected global business environment and now operate partnerships that span the world.
In terms of value, the industry’s recent growth has been primarily driven by this leading group of large firms whose core business is private equity buyouts. At this level, a handful of firms are emerging that are uniquely equipped to structure complex cross-border deals and buy businesses worth billions of Euros.
These firms have acquired this status because they have provided superior returns and have built large teams with deep expertise. They are well positioned to maintain this advantage because they possess a unique set of skills, experience and access to networks on a global scale.
As it moves into the mainstream, private equity has become an established part of the investment mix for many of the world’s largest investors, including pension funds, insurance companies, banks and university endowments. These institutions are committing an increasing proportion of their capital to private equity because it has consistently out-performed the more established investment choices available.
As well as offering institutional investors superior returns, private equity plays an important role in economic growth and job creation. A recent study by the Munich Technical University for the European Private Equity and Venture Capital Association (EVCA) found that between 2000 and 2004, European businesses acquired in buyout deals recorded a net increase of 420,000 jobs.