Exit and Growth Strategies for Middle Market Businesses

Private Equity vs. Stock Market

By Kim Levin | Aug 23, 2012

August Issue Middle Market Pulse

Middle Market PulseThe goal of savvy investors is to earn the highest rate of return while wisely managing the associated risk.  Balancing risk vs. return has been very difficult lately for traditional investments.  With interest rates on treasuries ranging from .05 to 2% and corporate stocks, bonds and mutual funds seemingly a roll of the dice, the private equity markets have been and continue to be an interesting and viable option for investment capital.  Private equity funds and strategic buyers alike have found that investing in a company poised for growth can provide the kind of return on capital that has been missing from traditional equity and debt markets.

Reuters announced in June 2012 that “U.S. private equity investments outperformed the stock market in 2011 and distributions to investors reached a record as fund managers seized on an opportunity to sell long-held assets.”  In 2012 PE exits remain strong and we could see an acceleration of exit activity as owners look to cash in before tax hikes take effect January 1, 2013.

As exits occur and portfolios reach the end of their life span, new un-invested capital is sitting on the sidelines waiting for the next round of fundraising to begin.  Considering the current rates of return in traditional markets, it is likely that this new capital will be waiting for a new round of private equity fundraising.  In addition, many private equity funds still have capital from existing funds to invest.  This is good news to business owners who are considering a sale, as both PE Funds and strategic buyers will seek out investment opportunities to build their portfolios or grow their businesses.

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One Response to “Private Equity vs. Stock Market”

  1. Navneet Saxena says:

    A very insightful yet succinct article

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