Private Equity Is a Plus

Academic research shows that private equity produces stronger and more-resilient companies.

Private equity. Carried interest. Leveraged buyouts. Venture capital. A once-obscure corner of the capital markets has exploded into the mainstream as Republican presidential candidate Mitt Romney defends the wealth he acquired in this most lucrative sector of the financial industry.

Private equity refers to a group of large investors, such as pension funds and endowments, that supply funds to general partners to use as venture capital (to incubate new companies) or to buy public companies, take them private and restructure them, sometimes by borrowing additional money (known as leveraged buyouts). Private-equity firms take an active role in monitoring, financing and reorganizing these companies with the goal of selling them back into the public market at prices that generate superior returns for both the general partners and investors.

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Jeremy J. Siegel
Contributing Columnist, Kiplinger's Personal Finance
Siegel is a professor at the University of Pennsylvania's Wharton School and the author of "Stocks For The Long Run" and "The Future For Investors."