what does “private equity structures” mean?
"Private equity firms have a unique structure: The general partners (GP's) of the firm create funds and manage the investments of those funds.  Limited partners (LP's) contribute the capital to the funds, pay fees to the GP's, and then make money when the funds' assets grow. I believe the article is saying that ultra high net worth individuals participate in the real estate market by hiring someone to act as a general partner and manage the real estate assets.  They and their friends contribute the cash and get shares in the resulting fund. Usually this GP/LP structure is used when the funds purchase or invest in private companies, which is why it is referred to as ""private equity structure,"" but the same structure can be used to purchase and manage pools of real estate or any other investment asset."
"This is an example from another field, real estate. Suppose you buy a $100,000 house with a 20 percent down payment, or $20,000, and borrow the other $80,000. In this example, your ""equity"" or ""market cap"" is $20,000. But the total value, or ""enterprise value"" of the house, is actually $100,000, counting the $80,000 mortgage.  ""Enterprise value"" is what a buyer would have to pay to own the company or the house ""free and clear,"" counting the debt." "Lots of questions: In general, no. Market Capitalization and Equity represent 2 different things.  Equity first, the equity of a firm is the value of the assets (what it owns) less its liabilities (what it owes) and consists (broadly) of two components - share capital (what the firm gets when it sells to investors as part of an IPO or subsequent share issue) and retained earnings (what the firm has as a result of making profits and not paying them out as dividends). This is the theoretical liquidation value of the firm - what it is worth if it stops trading, sells all its assets and pays all its debts. Market Capitalization is the current value of the future cash flow of the firm as perceived by the market - the value today of all the dividends that the firm will pay in the future for as long as it exists. This is the theoretical going concern value of the firm - what it is worth as a functioning business. In general, Market Capitalization is bigger than Equity - if it isn't the firm is worth more as scrap than as an operating business. Um ... no. If you don't have any shares then you are by definition not an owner. Having shares is what makes you an owner. What I think you mean is, is it possible for the owner(s) of a private company to sell all of its shares when it goes public? The answer is yes. It is uncommon for a start-up owner to do this but it is standard practice for ""corporate raiders"" who buy failing companies, take them private, restructure them and then take them public again - they have done their job and they are not interested in maintaining an ownership stake. Nope. See above and below. Not at all, equity is an accounting construct and market capitalization is about market sentiment. Consider the following hypothetical firm: It has $1m in equity, it makes $4m in profit and will do for the foreseeable future, it pays all of that $4m out as dividends - if we work on a simple ROI of 10% then this firm is worth $40m dollars - way more than its equity." "Many thanks for thedetailed  response, appreciate it. But I am still not clear on the distinction between a public company and the equity holders. Isn't a public company = shareholders + equity holders? Or do you mean ""company"" = shareholders+equity holders + debt holders?" Full disclosure: I’m an intern for EquityZen, so I’m familiar with this space but can speak with the most accuracy about EquityZen. Observations about other players in the space are my own. The employee liquidity landscape is evolving. EquityZen and Equidate help shareholders (employees, ex-employees, etc.) in private companies get liquidity for shares they already own. ESOFund and 137 Ventures help with option financing, and provide loans (and exotic structures on loans) to cover costs of exercising options and any associated tax hit. EquityZen is a private company marketplace that led the second wave of VC-backed secondary markets starting early 2013. The mission is to help achieve liquidity for employees and other private company shareholder, but in a company-approved way. EquityZen transacts with share transfers and also a proprietary derivative structure which transfers economics of a company's shares without changing voting and information rights. This structure typically makes the transfer process cheaper and faster as less paperwork is involved. Accredited investors find the process appealing because they get access to companies they usually cannot with small check sizes. To address the questions in Dzt's post: 1). EquityZen doesn't take a 'loan shark' approach meaning they don't front shareholders money so that they can purchase their stock. With EquityZen, you’re either selling your shares or selling all the economic risk—upside and downside—in exchange for today’s value. 2). EquityZen only allows company approved deals on the platform. As a result, companies are more friendly towards the process and they tend to allow these deals to take place. Non-company approved deals pose risks for buyers and sellers and are ultimately unsustainable. As a buyer, without company blessing, you’re taking on significant counterparty risk from the seller (will they make good on their promise to deliver shares in the future?) or the risk that the transfer is impermissible under relevant restrictions and your purchase is invalid. As a seller, you’re running the risk of violating your equity agreements, which can have severe penalties, like forfeiture of your stock. Your shares are also much less marketable when you’re looking to transact without the company’s knowledge or approval. 3). Terms don't change depending an a shareholder's situation. EquityZen is a professional company and values all of the shareholders that use the platform. It’s a marketplace so the market sets the price. In other situations, you may be at the mercy of just one large buyer. This can happen when you’re facing a big tax bill on exercise but don’t have the cash (because you have the stock). 4). EquityZen doesn't offer loans so this is a non issue. 5). Not EquityZen! EquityZen creates a clean break from the economics. It’s not uncommon for the loan structures to use an interest component as well as some other complications, like upside participation and and also a liquidation preference. EquityZen strives for a simple structure where you’re not on the hook for the downside and you’ve transferred all the upside as well. Reading the descriptions on Amazon.com it appears Investments is a graduate text and Elements of Investments is the undergraduate version of the text. Yep, a lot of startup funding these days is called equity, which makes for nice valuation, but there are often so many extra stipulations (I've even read of caps on upside; wish I could find the Matt Levine column on it now) that it really is effectively debt. I know this has already been answered and I know its frowned upon to dump a link, however, when it comes to investments it's best to get data from an 'official' source to avoid misinterpretations and personal opinions.  The attached pdf is from the S&P and provides detailed, but not overwhelming, information regarding the types of preferreds, the risks & common terminology: http://us.spindices.com/documents/education/practice-essentials-us-preferreds.pdf Page 1: PREFERRED SECURITIES DEFINED  Borrowing from two worlds, a preferred security has both equity and   fixed income  characteristics.  As such, the preferred structure   offers a flexible approach to structuring a preferred offering for an   issuer.   Companies have many reasons to issue preferred securities.  Financial   institutions, for  example, need to raise capital.  Many times they   will use the preferred market because of  any required regulatory   requirements, in addition to cost considerations.  Banks and    financial institutions are required to maintain a certain level of   Tier 1 capital—which  includes common equity and perpetual   non-cumulative preferreds—as protection against  the bank’s   liabilities.  Issuing more common equity comes at a cost, including   the dilution  of existing shares, which a company may not want to   bear.  Preferred securities are a  cheaper alternative approach to   raising the capital.  Companies often use preferred stock for strategic reasons.  Some of   these uses include: Why would you bet it’s Sun Capital Partners? OP said it’s a firm that specializes in buying software companies. Sun is a generalist investor. Tech-specific funds include, but are not limited to: Vista, Thoma Bravo, Insight Venture Partners, JMI Equity, etc. Right, I understand minority interest but it is typically reported as a positive under liabilities instead of a negative. For example, when you are calculating the enterprise value of a company, you add back in the minority interest.    Enterprise Value= Market Share +Pref Equity + Min Interest+ Total Debt - Cash and ST Equivalents.    EV is used to quantify the total price of a company's worth. If you have negative Min Interest on your books, that will make your EV less than it should be, creating an incorrect valuation.   This just doesn't make any sense to me. Does it mean that the subsidiary that they had a stake in had a negative earning? This would clear out a lot more. 1) Leverage is the act of taking on debt in lieu of the equity you hold. Not always related to firms, it applies to personal situations too. When you take a loan, you get a certain %age of the loan, the bank establishes your equity by looking at your past financial records and then decides the amount it is going to lend, deciding on the safest leverage. In the current action leverage is the whole act of borrowing yen and profiting from it. The leverage factor mentions the amount of leverage happening. 10000 yen being borrowed with an equity of 1000 yen. 2) Commercial banks: 10 to 1 -> They don't deal in complicated investments, derivatives except for hedging, and are under stricter controls of the government. They have to have certain amount of liquidity and can loan out the rest for business. Investment banks: 30 to 1 -> Their main idea is making money and trade heavily. Their deposits are limited by the amount clients have deposited. And as their main motive is to get maximum returns from the available amount, they trade heavily. Derivatives, one of the instruments, are structured on underlyings and sometimes in multiple layers which build up quite a bit of leverage. And all of the trades happen on margins. You don't invest $10k to buy $10k of a traded stock. You put in, maybe $500 to take up the position and borrow the rest of the amount per se. It improves liquidity in the markets and increases efficiency. Else you could do only with what you have. So these margins add up to the leverage the bank is taking on. International means from all over the world. In the U.S. A Foreign Equity fund would be non-US stocks.  There's an odd third choice I'm aware of, a fund of US companies that derive their sales from overseas, primarily. "Well, this sub is generally pretty darn good. Among us are investment bankers, private equity analysts, valuation analysts, portfolio managers, traders, brokers, bachelors, masters, and doctorate students, etc. We're helpful, though sometimes snarky, and have an exceedingly low tolerance for bullshit.  I love it here.  And while your logic is sound, we can actually explore private equity directly, as while private and public equity are related, they are different enough to study separately, in my opinion.  Private equity deals with private companies. By definition, these investments are illiquid (they cannot be easily sold like public stocks), and unmarketable (there is no ready market to trade these investments, like stock). They are generally held for longer time periods.  At its earliest stage, private equity is synonymous with ""initial investment"" or ""seed funding."" This includes (if we are maybe slightly liberal with our definition), the initial investment an entrepreneur makes into his business. At this stage, friends and family, angel investors and venture capital are present. At different points of a company lifecycle, different financiers become interested/applicable (mezzanine investors, etc.).  The investment made into a company allocates a certain percentage of the ownership of the company to the investor in exchange for cash (usually). This cash is used to cover expenses and take on capital projects. The goal of these investments is to directly make the company (and its value, and thus the investor's value) grow.   At some points in time, a new investor will show up and either invest directly in the company (same as before) or buy another investor's holding in the company (in which case, cash goes to *that specific investor* and *not* the company).   At every stage of investment leading up to IPO, the deals are negotiated between the parties. The results of a given negotiation determines the value of that company's equity. For example, if I pay you $100 for 50% of your company, the company's implied worth is $200. If two days later, Joe comes and offers to buy 33% of the company for $100, the Company is worth $300. (Special note: these percentages are assumed to be the allocation of equity **after** the deal. In this last case, the ownership of your company would be 33% you, 33% me, and 33% Joe. This illustrates something called *dilution,* which is very important to investors as it effects their eventual potential payoff later down the road, along with some other things).   At this point, do you have any questions?" It's quite alright, it's been over a decade since he passed so I'm not particularly sensitive about it any more.  I'll have a look at investopedia, but what I'm mainly interested in is private equity. I wanted to ask directly about that, but I feel that I need a frame of reference to understand what's going on. As in, I doubt I'd be able to really get private equity without first having an understanding of public trading.  Is this subreddit really that reputable? I've learned to not really trust reddit, for the most part. Is there some kind of curation here? Just from my experience and observation... VC there are spikes of activity.  Where many deals are closing and board meetings and issues pile up on top of each other and happen all at once.  But VC there are lulls where not much is going on.  PE is more consistent and predictable in general.  Yes of course exceptions arise but I found PE to be more 9 to 5 ish. Most of the money gained through PE is done through financial engineering/deal structuring. There are funds that are operationally focused which do make changes on the portfolio company level. From what I have seen, most people who are operationally focused do not achieve that much in the way of results. Picture it as consulting, except that the results of your initiatives are actually important.    As for turn-arounds, there are funds that specialize in that. Golden Gate Capital comes to mind. These are far more exciting investments, but can be very frustrating. If you want to look at it in terms of the public markets, turnarounds in PE are essentially levered value investments. It is likely that you aren't going to change the business much, but are actually just buying an out-of-favor business and waiting on the industry to bounce back.    The argument that PE funds just gut companies and sell with the new higher operating profitability is somewhat flawed. There is really only so much cost cutting you can do, once you have fired staff or corrected a mistake you won't likely have more chances to gain from that original problem. What people should be criticizing is that funds often cut capex and reinvestment to increase results at the expense of the future profitability of the company.