Question

what portfolio management method used by private equity company?

Answer 1

The portfolio management methods used by private equity companies are:

• Venture capital investment: Venture capital investment refers to an investment in young companies, startups, with no track of profitability or very little profitability but with high growth and profitability prospect. The idea is to invest invest in these young companies and exit with multiple times your return on the capital at later stage when these companies becomes profitable.
• Real estate: Private equity real estate firms invest significantly in the real estate. The idea is to generate a fixed income from the renting the property and generate the capital gain by selling the fixed asset. Some private equity firms also Invest in real estate index to generate significant return.
• Leverage Buyout: Leverage buyout are conducted when these borrows money from banks and financial instituion in the form of debt and then invest in companies where they believe company performance can be turned around. They buy stake in the company manage the company for some time and exit with high profitability.
• Growth capital : Growth capital Investment when a company has a profitable track record and now it wants to expand the business. Private equity firms provide capital with the intention to exit at high profitability in 3-5 years.
• Mezzanine Financing: Mezzanine financing consist of both debt and equity, private equity firms use debt and equity both to provide capital for exapansion. Mezzanine financing is sometimes also used as a working capital or before a company is planning to go for an IPO.