Private Investment Bonds and Private Equity Bonds
A private investment bond is quite similar to a private activity bond, only here, the bond loans money to a private entity. Much like private activity bonds, private investment bonds can be used to finance any number of private projects. Private investment bonds, though, do not carry all of the stipulations that private activity bonds do, making them much easier to acquire. However, the private entity does have to pay interest on the private investment bond.
Investors provide private equity capital in return for achieving risk adjusted returns that will be greater than those that could be achieved in public equity markets. Investors typically don’t invest in privately held companies; they develop a diversified portfolio of private equity funds instead.
Private equity firms usually receive the return on their investment through an initial public offering or a merger acquisition. Occasionally you will also see recapitalization where cash is distributed amongst the shareholders.
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