Lesson 2 of 6 · All lessons in this module
- What makes an investment alternative
- Private capital and hedge funds
- Real assets: real estate, infrastructure, natural resources and more
- Three ways in: fund investing, co-investing and direct investingVideo lesson
- Ownership structures: limited partnerships and beyond
- Compensation: fees, hurdles, catch-ups, clawbacks and waterfallsVideo lesson
Lesson 2 of 6 · 12 min
Private capital and hedge funds
Private capital funds companies outside the public markets, as equity (private equity, including venture capital for start-ups) or as debt (private loans, venture debt, distressed debt), while hedge funds are defined not by what they own but by how they invest.
In short
- Private capital = funding for companies that comes from neither the public equity nor the public debt markets.
- Private equity owners have a residual claim like public shareholders, but with full information access and influence over management.
- Most private equity targets mature or declining firms, often through leveraged buyouts, and improves them over several years.
- Venture capital is a specialised form of private equity for early-stage, start-up companies with high growth potential.
- Private debt includes private loans and bonds, venture debt (to early firms with little cash flow) and distressed debt (issuers near or in bankruptcy).
- Hedge funds are private vehicles that use leverage, derivatives and short selling; a fund of funds holds a portfolio of hedge funds.
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