With so much bashing of Bain Capital, the private equity firm where Mitt Romney previously worked, a better understanding of private equity is needed.
Many people tend to confuse the term private equity with venture capital and even vulture capital. These are all very different business models.
Venture capital firms typically invest in companies in the early stages of development. Vulture capital firms come in uninvited and buy the shares of companies that are either undervalued or in distress. They then try to extract value for themselves, no the shareholders, hence the term vulture.
Private equity firms are different. Large pension funds, endowments and other large investors often want to have a portion of their cash invested in private companies. To do this, they seek firms that have expertise in that area, namely private equity firms.
These firms find companies that need capital to grow and expand. They then invest in them with the hope of making them more profitable. This kind of investment also provides a return to the pension funds, endowments and other investors. This activity is far from being hostile, and it is certainly not the work of a vulture.
Ed Butowsky is the managing partner of Chapwood Investment Management and is an internationally recognized expert in the investment wealth management industry for over 25 years. Check out Ed’s discussion topics for a quick tip or two for your own financial well-being in his Media Center or follow Ed Butowsky on Facebook.Read More »