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Category: Business and Industry
Date Submitted: 03/25/2016 07:38 PM
CAPITAL – Chapter One
A fancy word for money
Characteristics: mobile, sensitive, scarce
Direct investing – when investments are made in “hard” assets…
like buildings, machinery, equipment
Indirect investing – purchases of securities issued (which means
sold) by governments or corporations
This course is all about indirect investing
SOURCES AND USERS OF CAPITAL
Individuals – domestic and foreign
Businesses – stocks and bonds
Government – Federal, Provincial & Municipal… budget surpluses
& deficits
MAJOR INSTRUMENTS
Debt or Fixed Income… Bonds versus Debentures
Equities – Common and Preferred Shares
Investment Funds – Mutual Funds
Derivative Products – Options & Futures and Forwards
Others – include linked notes and ETFs
PRIVATE EQUITY
The financing of firms unwilling or unable to find capital using
public means. The asset class includes both debt and equity; longterm returns for private equity typically exceed other asset classes
because private equity tends to be riskier
There are several means by which private equity investors finance
firms:
1. Leveraged buyout – the acquisition of companies financed
with debt and equity
2. Growth capital – financing expanding firms
3. Turnaround – out of favour industries that need operating
restructuring
4. Early stage venture capital – industries/companies in the
infancy stages of development
5. Late stage venture capital – more established, rapidly
growing firms that are still not profitable
6. Distressed debt – buying bonds below par due to financial
troubles at the firm
Private equity investors are typically: public pension plans, private
pension plans, endowments, foundations, and wealthy individuals
and families
The role of private equity in a portfolio context is to provide return
enhancement and diversification benefits
FINANCIAL MARKETS
Primary market… money flows from investors to issuing
company or issuing government unit
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