Private equity refers to the acquisition of equity in companies that don’t trade on public markets. This finance industry is relatively young in comparison to other sectors of commerce. The first firms, J.H. Whitney & Co. and the American Research and Development Corporation were both founded in 1946.
Internationally, the private equity realm includes venture capital, growth capital, distressed situations, and leveraged buyouts. Their services improve the global financial markets by offering liquidity to existing shareholders and funding companies expansions. The Asian continent appears to have the highest upside for the future of private equity. Singapore, a growing technology hub is attracting funds from all over the world to be deployed into technology startups.
Asia has become an increasingly attractive investment over the past decade as countries have opened their borders to investments and economic trade. On top of this, diplomacy initiatives such as the Association of Southeast Asian Nations (ASEAN) have unified the continent by emphasizing the importance of peace, collaboration, and business. Asia controlled about 15% of global private equity funds five years ago; the continent now holds more than 25%.
Europe arguably is the second most attractive continent for private equity right now. Western Europe has a higher number of large-scale companies per unit of GDP than many other parts of the world. On top of this, the European Union is a bit behind the U.S. in their economic recovery. This means that investors are able to scoop up corporations at a discounted compared to other economies. As the economy continues to grow, corporate earnings will also increase which gives investors a higher return on investment.
The reason that private investments are so attractive for investors is that it provides the ability to control a large stake in a firm. When investors control a large portion of a firm, they have the ability to influence the firm's strategy, spending, and hiring policies. Traditionally, private equity investments yield a higher return than public stock investments. Over the last 10 years, the median return in Asia’s market was 13-14%.