Handbook of Critical Issues in Finance

Handbook of Critical Issues in Finance

Elgar original reference

Edited by Jan Toporowski and Jo Michell

This vital new Handbook is an authoritative volume presenting key issues in finance that have been widely discussed in the financial markets but have been neglected in textbooks and the usual compilations of conventional academic wisdom.

Chapter 37: Private equity funds

Jan Toporowski

Subjects: economics and finance, financial economics and regulation, post-keynesian economics

Extract

A private equity fund is a fund established to buy and sell companies, through buying their equity (or common stock) in the stock market (where a company is said to be ‘public’, that is, available for members of the public to buy or sell) or buying it from its owners (in the case of a privately held company), and reselling the ownership claims on the company at a profit. Most private equity funds are limited partnerships of investors in the fund, typically pension funds, insurance companies, endowments or very rich individuals. These investors place large amounts of cash in the fund, usually in excess of $1m per investor, more commonly around $10m. The limited partnership has reporting and tax advantages over more usual financial investment vehicles such as investment trusts or mutual funds. Typically the fund will have a fixed term of, say, ten years, after which the investors obtain their funds back with a profit. Annual extensions of the fund may be made after the term of the fund is completed.

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