How Does Private Equity Investing Work in the UK?
Explanation
The equity securities of companies that are not listed on a stock exchange. Any investor wishing to sell them must find a buyer at arm’s length (i.e. directly or with the help of an intermediary, as opposed to through an organised market such as a stock exchange). There are usually many transfer restrictions on private securities.Equity or debt investments in private real assets, whether tangible or not, and whether fixed or not, thus ranging from royalties to airports. The purpose of this investment strategy is to develop, structure, or restructure the asset to generate a mix of divi- dends and capital gains.
The holding period is usually from three-to-twelve years, or even fifteen years. This investment strategy includes private real estate, private infrastructure, the oil and gas value chain, timberland and farmland, and other niches, such as intellectual property and royalty financing, mining, and leasing.
Private equity deals in the UK reached a peak of over 1,900 in 2021, with £152bn spent in the space of 12 months, according to data from Pitchbook. In total, more than a trillion pounds has been spent in UK private equity deals since the start of 2014. Attractive sectors and growth markets attract seasoned investors looking to deploy unprecedented levels of dry powder. Portfolio businesses that have undergone professionalisation and have strong management teams and margins also present as more viable and stable investment opportunities.
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The Origins and Evolution of Private Equity
Private equity (PE) has grown into a global financial powerhouse, but its beginnings can be traced back to the post-World War II era. The formation of the American Research and Development Corporation (ARDC) in 1946 marked one of the earliest institutional private equity efforts.
ARDC’s mission was to fund companies that could repurpose wartime technologies for commercial use. One of its landmark investments was in Digital Equipment Corporation (DEC). A modest $70,000 investment in DEC eventually turned into $355 million, delivering a return of over 5,000 times the original amount. This staggering success demonstrated the potential of private equity to fuel innovation and drive extraordinary financial outcomes.
The Rise of Leveraged Buyouts in the 1980s
The 1980s became a transformative decade for private equity, largely due to the emergence of leveraged buyouts (LBOs). Pioneering firms such as Kohlberg Kravis Roberts (KKR) led this movement, acquiring companies primarily through borrowed capital, implementing operational improvements, and exiting through strategic sales or IPOs. These deals often resulted in significant returns and played a key role in legitimizing private equity as a powerful tool for value creation.
Private Equity Today: A Global Asset Class
Fast-forward to today, and private equity has evolved into a multi-trillion-dollar global industry. PE firms are actively involved in reshaping key sectors, including technology, healthcare, financial services, energy, and consumer goods. The United States continues to dominate the market, but institutional investors are increasingly turning their attention to opportunities in Europe and Asia where valuations are more attractive and growth potential remains robust.
In recent years, PE has also embraced thematic and impact investing. Many funds are aligning their strategies with ESG (Environmental, Social, and Governance) principles or specific global trends, such as digital transformation, renewable energy, and health innovation. This not only broadens investor appeal but also enhances the sector’s influence on global progress.
The Dominance of Private Companies
One compelling statistic underscores the importance of private markets: approximately 83% of U.S. companies with over $100 million in revenue remain privately held. This highlights the vital role of private equity in financing, developing, and scaling enterprises outside the public markets.
In summary, private equity has evolved from a niche investment strategy to a dominant force in global finance. With its origins in innovation and a future driven by strategic investment, operational excellence, and global diversification, PE is positioned to remain a key player in shaping tomorrow’s economy.
