This article is about private-equity fund managers or financial sponsors. For private-equity investment funds and an overview of the industry, see private-equity fund
and private equity
Diagram of the structure of a generic private-equity fund
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:
- an initial public offering (IPO) — 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;
- a merger or acquisition — the company is sold for either cash or shares in another company;
- a recapitalization — 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 raising debt or 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 with hedge fund firms
which 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 sector's financial health.
Ranking private-equity firms
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 firm's 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.
- ^ A primer: Hedge funds, private equity & venture capital, USA Today, August 17, 2007.
- ^ Top 50 PE funds from Private equity international
Last edited on 4 April 2021, at 16:24
Content is available under CC BY-SA 3.0
unless otherwise noted.