The hedge fund and private equity capital raising environment in EU Essay

The hedge investment trust and mysterious equity capital raising environment in EU - Essay Example close to hedge funds establish and organize themselves as limited fractionnerships because of the flexibility that it entirelyows them. In order to hit the sack funds investors have to give notice of 30 days or more. There argon approximately 7,000 hedge funds with market values of US$1 trillion. According to McCaherty and Vermeulen (n.d.) hedge funds rail a variety of forms and be characteristic of the pursuit of high out go downs and the use of leverage to enhance the return on their investment. In recent times hedge funds and private equity have come to represent a significant part of financial activities in the financial markets in Europe, USA and Asia. The sizes of these investments atomic number 18 thumping as they continue to grow. Fund managers use a enactment of strategies, traditional techniques and a number of instruments such as equity, debt, options, futures and foreign currencies. In recent times hedge fund managers have prosecute in high risk investment strategies including currency trading, credit derivatives and restructurings in order to obtain supra normal returns on their investments Private loveliness Private equity fund managers invest mainly in unregistered securities. However, in recent times they have been engaged in taking private a number of in public listed companies. They use a number of different investment strategies with varying levels of liquidity. Private Equity Firms atomic number 18 not only involved in providing funds for new and developing companies but they are also engaged in the provision of funds for corporate restructuring, management buy-out and leveraged buy-outs. One Writer attributes the maturation of the buyout fund as the dominant style of investment to favorable credit market conditions, a large supply of loan funds and low interest rates, changes in the preferences of investors, a large number of p ublicly listed private equity vehicles and the increase in the demand for alternative assets by institutional investors such as pension funds. Brigham and Ehrhardt (2005, p. 664) indicates that in a going private transaction the entire equity of a publicly held firm is purchased by a small group of investors that usually includes the firms current senior management. There are usually two ways in which this transaction is carried out. In one instance the managers acquire all the equity of the partnership and in the other it does so with a small group of investors who set the old managers to manage. These are referred to as management buy-out (MBO) and management buy-in (MBI) respectively. This process normally involves substantial borrowings and is therefore described as Leveraged buyouts (LBO). Another term which is normally used is taken private which relates to a buyout of a public company and in the process removing it from the stock exchange listing, and therefore transforming it into a private firm (Fraser-Sampson, 2007). Public companies are normally taken private because they have the potential of providing substantial cash flows to investors as the shares are soon undervalued on the stock market. The managers see the potential of significantly boosting the firms value under private ownership (Brigham and Ehrhardt 2005, p. 664). This means that companies taken private have the potential of enriching not only the managers who take part in the buyout but the public shareholders who are often offered prices higher than the going market