Private Equity Info Blog

For each fund under management, private equity firms cycle through a multi-staged process of:

• Fund raising from limited partners
• Portfolio acquisition search
• Investment
• Growth
• Divestment
• Dispersal of funds back to limited partners

Fund Raising

Most private equity firms raise capital for a fund through investments made by limited partners - typically pensions, endowments, institutional funds, and high net worth individuals - with the private equity firm serving as the general partner.

Prior to a capital raise, private equity firms normally establish a target fund size. Depending on the firm’s track record and the general economic climate, fund raising efforts may either be under- or over-subscribed. New funds for historically successful private equity firms are commonly over-subscribed and may therefore close with capital in excess of the target fund size.

Acquisition Search

Once fund raising is complete, private equity firms begin scouting for potential portfolio investments. While private equity firms enjoy meeting directly with companies interested in selling, often the introduction between a company and a private equity firm is made through an investment banker. www.PrivateEquityInfo.com provides corporate executives, business owners and investment bankers with the ideal information resource to quickly identify those private equity firms that might have an interest in their (or their clients’) company.

Investment in Portfolio Companies
As private equity firms identify potential portfolio companies in which to invest, they go through a merger & acquisition transaction process to acquire these new portfolio companies.

Corporate Growth

Private equity firms will often have a fairly aggressive growth strategy - for both organic and growth by add-on acquisitions - as a means to create value and therefore enhance the valuation of their portfolio.

Divestment - Liquidity Event

Because limited partners do not have an infinite investment horizon, private equity firms must eventually convert equity value back to cash by liquidating portfolio holdings. A divestment could occur in the form of a buyout, initial public offering (IPO), strategic acquisition, or another private equity firm buying the portfolio investment. Regardless of how it transpires, the divestment of a portfolio company creates a liquidity event for the private equity firm, essentially converting equity into cash or more cash-like equivalents.

Capital Gains

Private equity firms make money both from the cash flow that a portfolio company produces while it is owned by the private equity firm as well as from the capital gains realized upon exit. The liquidity event at exit produces and finalizes a capital gain (or loss) for the partnership for that particular investment.

Dispersal of Funds

The dispersal of the capital gain (or loss) from the fund to the limited partners provides the limited partners with a definitive return on investment for the life of the fund.

Next Fund

Long before a private equity firm finalizes its dealings with a particular fund, the PE firm begins the process of raising money for the next fund. In fact, it’s not uncommon for a successor fund within a private equity firm to purchase some lingering portfolio holdings from a prior fund.

Private Equity Info provides a comprehensive database of private equity firms, their investment interests, acquisition criteria, transaction types, portfolio companies and professional biographies. Plus, view other related firms such as hedge funds, mezzanine investors, small business investment companies, valuation service providers, investment banks, institutional real estate investors and senior lenders.