Private Capital Markets are Free of the Shortcomings Public and Internal Capital Markets

It is because private capital markets are not subject to the anchors and burdens of public and capital markets that they are capable of relatively higher performance. With a "Barbarians at the Gate" reputation, private capital managers reject internal capital allocation "socialism" in unleashing higher financial value from the tangible and intangible assets of their acquisitions. Within the four types of private capital market participants, private equity funds, such as the Blackstone Group and the Carlyle Group, are relatively more aggressive than angels and venture capitalists. With a "buy low and sell high" approach to investing, private equity funds have one goal: to transform and turn around the acquired company. Note that they always have an exit plan. In contrast, angels and venture capitalists are interested in helping the young companies they are funding to successfully blossom as a business, such as Yahoo! and Google.

Private equity funds do not necessarily acquire glamorous growth companies but often older ones in mundane industries. Similar to a hospital patient in an intensive care unit, companies acquired by private equity fund managers have one purpose: to have their financial health improved and then be sold. However, the stakes and risks are large. In contrast to public and internal capital markets, with private equity funds, an investor's capital is locked up until the sale of the company - or until its parts are broken up and sold individually. There is a price premium for an illiquid investment, which places additional pressure on private equity fund managers to produce a high yield at the time of sale. (Because these acquired companies upon exit are frequently purchased by publicly owned companies, these assets are basically returned to the public capital markets. The intensive care patient is returned to the traditional business model.)

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