Monday, June 11, 2007

What's the worry about 'private equity'

Private equity is a broad term that commonly refers to any type of equity investment in an asset in which the equity is not freely tradeable on a public stock market. More accurately, private equity refers to the manner in which the funds have been raised, namely on the private markets, as opposed to the public markets.

Private equity is medium to long-term finance provided in return for an equity stake in potentially high growth unquoted companies.

An article on paints a dark side to private equity.

"Aware that in Asia small, entrepreneurial companies often lack the access to debt and equity markets enjoyed by their Western counterparts, they resolved to play the part of matchmaker.

The result is a growing market in which hedge funds, buy-out groups and investment banks, club together to finance private deals for firms that are too small for initial public offerings, or are growing so fast that they would rather wait."

I get the feeling that if private equity firms are not required to comply with disclosure requirements in the public interest, then it is a case of Murphy's law waiting to happen.

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