Conventional versus Islamic Private Equity

By Mohamed Ali Chatti and Ouidad Yousfi

There are some similarities between Islamic and conventional PE, like for example the active participation, the quick exit of the PE fund and the close partnership. But they display also different features.

Almost everyone today has heard of the terms: private equity (PE), venture capital (VC) and leveraged Buy out acquisitions (LBO). These activities are sources of funding for a large range of unlisted firms.

Supported by state aid programs and tax incentives, the story of PE has its origins in the US. In 1946, Georges Doriot, Ralph Fanders and Karl Compton established the American Research and Development Corporation (ARDC). The objective was to fund private investments of soldiers returning from the World War II. It is officially the first VC institution. Then, the number of PE investments and the volume of raised funds have increased significantly. Indeed, the amount of money raised by PE investors has sometimes exceeded capital issued through Initial Public Offering (IPO).

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