PrivateEquity

Private equity refers to investments in privately held companies or in publicly traded ones that are taken private. Firms in this field raise capital from institutional investors and high-net-worth individuals to form dedicated investment funds. Investments are typically long-term and involve active ownership or substantial influence over management and strategic direction.

Funds are managed by general partners who decide how to invest and operate, while limited partners provide most of the capital and receive returns. Common fee structures include an annual management fee and a performance-based carried interest, often around 2% and 20%, respectively.

Private equity employs strategies such as leveraged buyouts, growth equity, and venture capital. Leveraged buyouts use debt to finance a majority stake in a target company, with the expectation that cash flows and asset sales will repay the debt. Growth equity invests in expanding companies usually with minority stakes and without full control.

The investment process includes deal sourcing, due diligence, deal structuring, and financing, followed by active portfolio management. Value creation may rely on operational improvements, strategic governance changes, additional acquisitions, and cost efficiencies.

Exits provide liquidity and returns, typically through sales to strategic buyers, secondary sales to other investors, recapitalizations, or initial public offerings.

Private equity operates worldwide with diverse regulatory environments. Proponents cite capital formation and corporate restructuring, while critics highlight leverage, fees, governance concerns, and questions about long-term effects on employees and suppliers.