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In recent times Private Equity has become a force to reckon with in global financial markets, by
raising huge amount of capital and using it to make big-ticket acquisitions.
The PE model is based on raising huge sums of money from investors, buying companies that
offer scope for significant value addition, turning them around and selling them for a profit, 20% of
which (carried interest) is major source of income for PE firms.
However starting July ’06, the credit supply has dried out owing to crisis in subprime mortgage
segment, which has made it difficult for PE firms to raise huge sums of money to keep the deal-
making engine running. Credit Crunch coupled with new tax proposals in US which would tax PE
firms’ earnings at rate of 35% instead of 15% earlier, indicates that private equity boom might
have peaked.
Judged by number of deal happenings, the Indian PE scenario seems to be immune from global
imbalance at least for the time being, for the reason being Indian deals are not highly leveraged
Once the market stablilizes and interest rates fall again the Private Equity will again be on the
path of growth: beginning of a new golden age.