Private equity has always been classified as an “alternative” asset class, i.e. a loosely defined class of asset which includes all assets beyond the three primary classes — stocks, bonds and cash. In the world of finance, alternative assets may include special physical assets, such as natural resources or real estate; special methods of investing, such as hedge funds or private equity; and even in some cases geographic regions, such as emerging markets... 

Private equity usually covers investments in companies not quoted on a stock market, i.e. private companies, or sometimes divisions of larger groups, or even investments in listed companies with private capital using a creative combination of equity and debt. Freed from financial and corporate constraints, properly

refinanced and equipped with a strongly incentivized and focused management team, these businesses would possibly shine and deliver strong performances. The private equity owners would then sell the company to a corporate rival or take it public, hopefully with great riches for all at the end.

Until a few decades ago, private equity was a small, dark corner of the financial markets that few people had heard of and even fewer cared about. But the recent growth of the industry — before the debt crisis hit in 2008 — has been extraordinary, whether measured by the capital raised or the number of funds on the market.

This extraordinary growth, according to many observers, makes the label “alternative” not appropriate anymore. As interest in alternative investments has grown, and as such investments have become more mainstream, the phrase ‘alternative investments’ itself is beginning to sound like a contradiction in terms. What were once considered fringe investments are now deemed essential components of many institutional investors’ portfolios.

 

 

Hans van Swaay
Partner