This article is about private equity fund managers or financial sponsors. For private equity investment funds and an overview of the industry, seeprivate equity fundandprivate equity.
Diagram of the structure of a generic private equity fund
Aprivate equity firmis aninvestment managementcompany that providesfinancial backingand makes investments in theprivate equityof startup or operating companies through a variety of loosely affiliatedinvestment strategiesincludingleveraged buyoutventure capital, andgrowth capital. Often described as afinancial sponsor, each firm will raisefundsthat will be invested in accordance with one or more specific investment strategies.
Typically, a private equity firm will raise pools ofcapital, orprivate equity fundsthat supply theequitycontributions for these transactions. Private equity firms will receive a periodicmanagement feeas well as a share in the profits earned (carried interest) from eachprivate equity fundmanaged.
Private equity firms, with their investors, will acquire a controlling or substantial minority position in a company and then look to maximize the value of that investment. Private equity firms generally receive a return on their investments through one of the following avenues:
) shares of the company are offered to the public, typically providing a partial immediate realization to the financial sponsor as well as a public market into which it can later sell additional shares;
the company is sold for either cash or shares in another company;
cash is distributed to the shareholders (in this case the financial sponsor) and its private equity funds either from cash flow generated by the company or through raisingdebtor other securities to fund the distribution.
Private equity firms characteristically make longer-hold investments in target industry sectors or specific investment areas where they have expertise. Private equity firms and investment funds should not be confused withhedge fund firmswhich typically make shorter-term investments in securities and other more liquid assets within an industry sector but with less direct influence or control over the operations of a specific company. Where private equity firms take on operational roles to manage risks and achieve growth through long term investments, hedge funds more frequently act as short-term traders of securities betting on both the up and down sides of a business or of an industry sectors financial health.1
According to an updated 2008 ranking created by industry magazine Private Equity International2(The PEI 50), thelargest private equity firmsincludeThe Carlyle GroupKohlberg Kravis RobertsGoldman Sachs Principal Investment GroupThe Blackstone GroupBain CapitalSycamore PartnersandTPG Capital. These firms are typically direct investors in companies rather than investors in the private equity asset class and for the most part the largest private equity investment firms focused primarily onleveraged buyoutsrather thanventure capital.
Preqinltd (formerly known as Private Equity Intelligence), an independent data provider, provides a ranking of the25 largest private equity investment managers. Among the largest firms in that ranking wereAlpInvest PartnersArdian(formerly AXA Private Equity),AIG InvestmentsGoldman Sachs Private Equity Group, andPantheon Ventures.
Because private equity firms are continuously in the process of raising, investing, and distributing their private equity funds, capital raised can often be the easiest to measure. Other metrics can include the total value of companies purchased by a firm or an estimate of the size of a firms active portfolio plus capital available for new investments. As with any list that focuses on size, the list does not provide any indication as to relative investment performance of these funds or managers.
History of private equity and venture capital
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A primer: Hedge funds, private equity & venture capital, USA Today, August 17, 2007.
Top 50 PE fundsfromPrivate equity international
Private equity a guide for pension fund trustees. Pensions Investment Research Consultants (PIRC) for the Trades Union Congress.
Krger Andersen, Thomas.Legal Structure of Private Equity Funds. Private Equity and Hedge Funds 2007.
Prowse, Stephen D.The Economics of the Private Equity Market, Federal Reserve Bank of Dallas, 1998.
History of private equity and venture capital
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This page was last edited on 15 October 2018, at 00:27