At its heart, private equity and venture capital are simple investment models. They raise capital from institutional investors like pension funds, insurance companies and family-offices and use this money to buy equity stakes in businesses across the UK and across a wide-range of sectors.
Private equity and venture capital invests in companies that are typically unquoted – i.e. not listed on a stock market – and will seek to make a return on its investment by growing and improving the company, using not only finance but also their own commercial expertise and business acumen.
The length of the investment varies but generally it is between four to seven years. This means there is a commitment to building lasting and sustainable value in the companies they invest in. Creating value in a business is key to the private equity model. Simply put, it means improving the business over the lifetime of the investment, so that by the time it comes to sell the equity stake, the company is in a better shape and is worth more than when the investment was first made. Stakes are typically sold to large corporates, other investors or by listing the business on the stock market.
For institutional investors, private equity and venture capital is an asset class which has consistently delivered strong returns, continuously outperforming other asset classes, including the public markets. Its ability to produce returns even during times of economic downturn makes private equity and venture capital very attractive for institutional investors, be they local authority pension funds, corporate pensions, insurance companies, university foundations or sovereign wealth funds.
Private equity and venture capital delivers for both institutional investors and for the wider economy, providing investment, driving innovation and building British business. It is, quite simply, funding the future.
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