Private Equity and Debt is a very broad category covering numerous scenarios. In a nutshell, it is the non-public private equity and debt of a corporation and is exempt from registration and usually doesn’t trade on any nationally recognized exchange. Essentially, any company that is privately held and issues either equity or debt to its shareholders can meet the definition.
Commonly you will see privately held fund companies which are set up to raise money for varying purposes within the corporate world. As such, investors provide the funds which ultimately invest in the corporations for a specific purpose. The fund managers will focus on companies that generally need to raise the money for a new venture, a lack of operating funds, capital restructuring or for the sale of the company itself.
Debt can be utilized to fund a specific event, to grow the company, or even a security such as those known as “church bonds” to fund the development of a non-profit facility. The debt or equity is structured through investment notes or “paper” which can be bought by investors in varying increments.
The investors of private equity or debt usually prepare themselves for a long-term commitment because the purpose of the investment may be tied to a specific corporate event; the investors position themselves to realize the end result of success. The equity can pay dividends or earnings or can be structured so there is gain at a certain event such as a Royalty Stream from oil and gas or pharmaceutical development. Debt can be an instrument that pays interest periodically during the term, or in a lump at end of term, or can even have earned interest convert to equity.