The Evolution of Private Equity | Global Advisory, Administration & Family Office Firm - Maitland Group

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Private Equity

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Private Equity

The Evolution of Private Equity

As investors continue to search for longer term investments that provide higher returns on capital, more and more are allocating funds to the alternative asset class. However, this exciting and growing industry leaves much to be discussed, explored and answered.

Jacolene Otto, Head of Private Equity & Real Estate Tweet

Investors and fund managers would do well to remember that although private equity has received a lot of attention over the past couple of decades, it certainly isn’t a new concept. For centuries investors have been taking stakes in privately held companies. Indeed, private equity and venture capital have played a pivotal role in some of the big disruptions in life as we know it since the dawn of the Industrial Revolution.

Merchant bankers in London and Paris started to finance a number of industrial concerns some 175 years ago in the 1850s.

One of these was the funding of the Transcontinental Railroad in the United States. Known as the Pacific Railroad when it opened, this served as a vital link for trade, commerce, and travel and opened up the North American heartland. The transaction was financed by Credit Mobilier, founded by Jacob and Isaac Pereire together with American financier Jay Cooke.

At the beginning of the 1900s, J.P. Morgan & Co., founded by J. Pierpoint Morgan, acquired the Carnegie Steel Company for US$480m from Andrew Carnegie and Henry Phipps, representing one of the first true major buyout transactions as we know it today.

The origins of modern private equity investment

Modern private equity investments, as we recognise it today, go back to the end of World War II. This continued with venture capital firms focusing on starting and expanding companies, primarily on technology in Silicon Valley during the 1960s and 1970s. Private equity and venture capital firms had a hand in developing many companies that we can’t imagine our lives without today, such as Apple Inc., Amazon and e-Bay, to name a few.

The industry has also changed over the years. Whereas private deals were previously funded by uber high net worth individuals, big banks and financial institutions, the market has now also opened up to pension funds and development finance institutions.

Private equity’s role in facing global challenges

Globally we face urgent challenges of poverty, inequality and climate change. With an expanding population globally and the growing need for infrastructure, housing, healthcare, sanitation, food security and education, the demand for capital to fund development in these areas is ever increasing.

The strong demand for solar panel and wind farms, agro-processing, water desalination plants, new technological innovations, roads, highways and dams has turned investor attention towards impact investing. Impact investing allows investors to turn a profit while at the same time making a socio economic impact.

Look out for our next article where we will be exploring the pivotal role of ESG factors in real estate.

Topics

What's Covered

As we delve into the myriad of topics affecting investors, fund managers and new entrants into the market, this educational series will uncover the mystery of the private equity universe:
The Ecosystem that surrounds a Private Equity fund
The role and history of PE
Understand the exciting and growing industry of Private Equity
Clearing misconceptions about Private Equity
What a fund manager should know before starting a PE fund
Introducing third party valuations
Fund structuring and the role of your administrator
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