Financial Education

Buyout funds represent a significantly larger market segment within private equity compared to venture capital. Mega-cap buyout funds typically will take public companies private through a leveraged buyout. Mid-market funds will purchase private companies or divisions of larger companies.

Buyout funds add value by restructuring operations, by buying opportunistically when companies are selling at less than their intrinsic value, or by capturing gains by adding to or restructuring existing debt. They can realize these gains through a later public offering, selling the company to another buyer or by recapitalizing (borrowing and using the proceeds to pay a special dividend).

Buyout funds differ from venture capital funds in a number of ways:

• They are usually highly leveraged
• Cash flows to investors are typically more stable and start sooner
• Returns are not as subject to measurement error

For more information, see all articles on: Active Management, Alternative Assets, Asset Allocation, Institutional Investing, Investing in Private Equity, Portfolio Management

See also:

Determinants of Funds of Hedge Funds Performance

Do Market Timing Hedge Funds Time the Market?

Asset Fire Sales in Equity Markets

The Structure of Hedge Funds

Types of Hedge Funds