Private equity (PE) typically refers to investment funds, generally organized as limited partnerships, that buy and restructure companies.
Private equity is an alternative investment class that invests in or acquires private companies that are not listed on a public stock exchange.
What Is Private Equity and How Does It Work?
Private equity is a sort of equity and one of the asset classes that includes equity and debt securities in running companies that are not publicly traded on a stock market.
PE is a group of investment firms that invest in or purchase private companies that are not publicly traded on a stock exchange. PE funds can also buy public firms, take them private, and then restructure them for future growth.
PE is also frequently lumped within a broader category known as “private capital,” which refers to cash that supports any long-term, illiquid investment strategy.
How Private Equity works
Private equity invests in diverse assets by raising capital from institutional investors and rich people. PEs invest in stressed assets and leveraged buyouts of firms with the goal of strengthening their balance sheets or taking them public.
PEs also invest in REITs, real estate funding, and venture capital firms.
Private equity types are classified into three types: venture capital, growth equity, and buyouts. These methods do not compete with one another and require distinct abilities to be successful, but each has a place in the life cycle of an organisation.
Here’s a closer look at each PE types:
Venture Capital: is a sort of PE investment made in a startup during its early stages. In exchange for a stake in the company, venture capitalists provide seed investment.
Venture capitalists often do not want a majority stake (more than 50%), which can be appealing to founders.
Growth Equity: Growth equity is a form of PE strategy in which capital is invested in an existing, growing company.
Growth equity enters the picture later in a company’s lifespan, when it is established yet requires additional money to grow.
Buyouts: occur when a mature, normally public company is taken private and purchased by a private equity fund or the company’s current management team.
This sort of investment accounts for the majority of money in the private equity industry. When a buyout occurs, all of the company’s former investors cash out and leave.
Buyouts are classified into two types:
Management buyouts, in which the existing management team purchases the company’s assets and gains control.
Leveraged buyouts are buyouts that are financed with borrowed funds.
Private Equity Firms—Private Equity Example
What is a private-equity firm? It is an investment management organisation that provides financial backing and makes PE investments in startup or operating companies using a number of loosely related investment strategies such as leveraged buyout, venture capital, and growth capital.
Each firm, which is sometimes referred to as a financial sponsor, will raise funds that will be invested in accordance with one or more specific investment strategies.
listed below are among the largest PE firms known:
- The Blackstone Group Inc.
- KKR & Co. Inc.
- CVC Capital Partners
- The Carlyle Group Inc.
- Thoma Bravo
- Vista Equity Partners
- Warburg Pincus LLC
- Neuberger Berman Group LLC
- Bain Capital
- Apollo Private Equity
- Waterland Private Equity
- Baring Private Equity Asia
- Omers Private Equity
- Quadrant Private Equity
- TPG Private Equity
- Advent Private Equity
- Kelso Private Equity
- Argonaut Private Equity
- Ares Management
Private Equity Firms in Nigeria
They are few PE firms in Nigeria. Some of them include:
- Stanbic IBTC Asset Management
- Zenith Capital
- Chapel Hill Danhem
- Vetiva Capital Management Limited
- Meristem Securities Limited
- Greenwich Trust Limited
- WSTC Financial Service
- Afrinvest Securities Limited
Private Equity Firms Lagos
There are quite a few PE firms in Lagos. Some of the known PE firms are:
- Syntaxis Capital Africa
- Novare Equity Partners
- Capital Alliance
- The Abraaj Group
- Verod Capital Management
- Alitheia Capital
- MBO Capital Mangement
Real Estate Private Equity
When compared to other private equity funding categories, real estate private equity funds require a greater minimum capital investment. This sort of investment also secures investor monies for numerous years. According to Preqin, the market for private equity real estate funds is predicted to rise by 50% by 2023, reaching $1.2 trillion.
Real Estate Private Equity Firms
It is an asset class made up of pooled private and public investments in real estate markets.
The top Private equity real estate vary from year to year. Below is the list of the top four (4) real estate PE firms
- Brookfield a
Terminologies Associated with Private Equity
Private Equity News: is a business publication established in Europe that covers the private equity industry.
It is owned by Dow Jones and is a sister publication to Financial News, Private Equity Analyst, and The Wall Street Journal.
Private Equity International: is a global source of private equity sector knowledge, analysis, and data, with a primary focus on the link between investors and fund managers.
It is well-known for the PEI 300, an annual ranking of the industry’s major private equity companies that ranks organisations based on money raised (“dry powder” in industry parlance) during a 5-year period.
Private Equity ETF: is an exchange-traded fund that invests primarily in private companies. In this regard, it aspires to be similar to typical private equity techniques.
Private equity ETFs, like any other stock or ETF, can be purchased and sold on an exchange.
Private Equity Fund Structure: PE funds are closed-end investment vehicles, which means that there is a limited window for raising money, after which no additional funds can be raised. These funds are commonly organised as a Limited Partnership (“LP”) or a Limited Liability Company (“LLC”).
Private Equity Investor: PE works with investors to invest in private enterprises or acquire public corporations.
General partners can gain control over management and other operational changes in order to boost profitability and sell for a profit later on.
Private Equity Tax: Individual tax returns are used by investors to record their portion of the fund’s revenue (or loss).
Private Equity salary: The average yearly salary for a Private Equity Associate with less than three years of experience in 2022 was around $99,000. 1 The average national wage ranged from $54,000 to $180,000.
Advantages of Private Equity
PE has various advantages for businesses and startups. They include:
- Firms choose PEs because they provide access to cash as an alternative to traditional financial mechanisms such as high-interest bank loans.
- Certain types of PE, such as venture capital, also fund ideas and early-stage businesses/startups.
- PE financing can assist delisted companies in attempting unorthodox growth tactics away from the gaze of markets, as these companies are not under continual pressure to declare quarterly earnings.
Disadvantages of Private Equity
- Upfront finance is required: To invest in a private equity firm, you will most likely require access to a considerable amount of capital as an investor.
- It can be a time-consuming procedure to get a company on the radar of a private equity firm.
Private Equity Vs Venture Capital
PE capital is money invested in a company or other entity that is not publicly traded or listed. Venture capital is money given to startups or other fledgling firms that exhibit long-term growth potential.
Private Equity Vs Hedge Fund
Hedge funds are alternative investments that earn returns for their owners by pooling money and employing a range of strategies.
PE funds make direct investments in businesses by either purchasing private enterprises or acquiring a controlling interest in publicly traded companies.
Private Equity Vs Investment Banking
Private equity firms pool high-net-worth cash and look for investment possibilities in other companies. Investment banks pick companies and then go to capital markets to find ways to raise funds from the investing public.
Investing In Private Equity (PE)
There are PE investment firms, sometimes known as business development companies, that provide publicly listed stock, allowing ordinary investors to acquire a piece of the PE pie.
Due to Securities and Exchange Commission laws surrounding illiquid securities holdings, mutual funds are restricted from purchasing PE, but they can invest indirectly by purchasing publicly traded PE companies.
Ordinary investors can also buy units in an exchange-traded fund (ETF) that contains shares of PE firms
How does Wikipedia define Private Equity?
Private Equity Wikipedia: Private equity (PE) is a term used to describe investment funds that buy and restructure businesses. These funds are normally established as limited partnerships.
How does Investopedia define Private Equity?
Private equity Investopedia: Private equity is a type of alternative investment that invests in or purchases private enterprises that are not publicly traded on a stock exchange.
What is healthcare private equity?
To make money, private equity firms invest in health-care systems. Health practises and providers must be willing to sell for this to happen. This can occur when a hospital or other health care facility is trying to make ends meet.
What is private equity for beginners?
PE is a broad word that refers to a variety of funds that pool money from a variety of investors in order to amass millions or even billions of dollars, which are then used to acquire shares in businesses.
Is private equity a good investment?
Because of the potential for significant profits, private equity is an appealing investment choice for high-net-worth individuals and institutional investors.
Private equity is classified as an alternative asset class.
How hard is it to get into private equity?
Your chances of securing a Private Equity position at a top ten firm are one in 300. According to the National Center for Education Statistics, the number of students pursuing business degrees in the United States is 3.9 million3 as of October 2019.
How can I get into private equity with no experience?
If you are unable to obtain an internship or your first position in private equity, consider a related profession such as venture capital, investment banking, or asset management.
These companies are also unlikely to hire inexperienced business school grads, no matter how intelligent they are. This is, once again, a function of supply and demand.
What are the key risks of private equity?
We believe that the most significant risks in the asset class are market risk, financing risk, liquidity risk, and capital risk, and that diversification can significantly lower both funding and capital risk.
How much money do you need for private equity?
Private equity funds have a relatively large minimum investment—typically $25 million, though some are as low as $250,000. Investors should anticipate holding their private equity investment for at least ten years.
How do you get into private equity?
A bachelor’s degree in accounting, finance, or a comparable school, as well as an MBA, are required to become a private equity analyst.
Entry-level positions are available, however prior expertise in the financial sector is normally required.
Do you need an MBA to work in private equity?
Although most big private equity firms prefer individuals with an MBA, you can still work for a smaller firm without one. Smaller companies favour applicants with an MBA, but it is not always required.
How many hours do private equity associates work?
Lifestyle and Hours of a Private Equity Associate
Many smaller and middle-market funds anticipate you to work 60-70 hours per week, primarily during the week, with occasional weekend work when deals heat up.
Is CFA needed for private equity?
The Chartered Financial Analyst (CFA) qualification is a badge of honour on the buy-side and a must-have for equity researchers. It’s less common in investment banking and even less prevalent in the private equity industry.
Is a career in private equity worth it?
A career in private equity can be financially and personally rewarding. Private equity managers frequently take considerable pride in successfully bringing their portfolio firms to new high levels of profitability.
How are hours in private equity?
You’ll work hard in private equity, but the hours aren’t nearly as long. When there is an active deal, the lifestyle is similar to banking, but otherwise much more relaxed.
You normally arrive at the office around 9 a.m. and depart between 7 and 9 p.m., depending on what you’re working on.
What percentage of private equity investments fail?
The general rule of thumb is that only three or four start-ups fail entirely out of every ten.
Another three or four return the initial investment, with one or two producing significant returns. According to the National Venture Capital Association, 25% to 30% of venture-backed enterprises fail.
What typically happens when a private equity firm acquires a company?
When a private equity firm (PE) acquires a company, they collaborate with management to dramatically improve EBITDA throughout the course of the investment.
A successful portfolio business can often raise its EBITDA organically as well as through acquisitions.
Understanding what private equity (PE) is and how it creates value are the first steps in entering an asset class that is gradually becoming more accessible to individual investors.
Private-equity (PE) specialists are frequently successful in deploying investment capital and improving the valuations of their portfolio companies because the field attracts the best and brightest in corporate America.