Private equity is an investment capital source that can be derived from wealthy (high end) individuals or organisations like pension funds, used for investment in a wide range of projects that are not funded by privately traded stock. It is often the case that the money private equity companies raise, along with borrowed cash, is ploughed into firms that are seen to be under performing - and are believed to be able to do a lot better.

The general idea is to buy the company and then sell it once it is turning a profit. The industry has grown a great deal over the years. In the United Kingdom, it is thought that around 80 billion pounds has been invested in nearly 30 thousand companies, making it a very important part of the economy.

This practice is a process that the UK government is very supportive of, and it is thought that it gives ailing firms a boost of market discipline, stronger management - and creates jobs or sustains existing ones. There are of course people who might see private equity as a negative thing - for example when private equity companies make sweeping job cuts, such as was the case with the AA and Birdseye Foods.

Many of Britain's unions consider the behavior of private equity firms 'asset stripping' pointing out that equity firms need to make massive cuts because of the huge debts they take on to finance their deals. In answer to this, the buy out firms state that they need to make these cuts in order to make the companies they buy profitable. One more concern regarding these kind of firms is their transparency - where there is a distinct lack of transparency.

The process of conducting private equity buy outs is one that has attracted significant tax breaks over the years which is another reason why private equity firms are not very popular among some people - being taxed at just 10% termed 'carry'.

Many people think that this tax situation should be reversed - citing the idea that some of the investors pay less tax than the people who clean their offices. While this might be true, the government does make a lot of money through taxation and it is said by some that if the government taxes these firms at the higher rate they will simply move to another country to benefit from more favourable tax regimes.