Private equity firms are investment partnerships that acquire and manage mature companies with the goal of increasing their value before selling them for profit. These funds typically derive capital from accredited and institutional investors, often supplemented by debt, and are managed by a general partner who makes all management decisions. The private equity industry has expanded significantly since 2000 due to strong returns and increased interest in alternative investments.

1. What Is Private
Equity?
A t e f A b o u M e r h i

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2
What Is
Private
Equity?
Private equity firms are
investment partnerships
that buy companies and
manage them prior to selling
them (hopefully for a profit).

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What Companies Do Private
Equity Firms Invest In?
How are Private Equity Funds
Managed?
Unlike venture capital, most private equity funds and
firms invest in mature companies as opposed to start-
ups. These funds or firms usually manage their port-
folio of companies with the goal of extracting value or
increasing their worth before exiting the investment
some years later.
Since 2000, the private equity industry has grown
rapidly, partly due to private equity funds’ relatively
strong returns and increased allocations to alterna-
tive investments.
These investment funds are operated on behalf of accredited and institutional investors. The capital for acqui-
sitions derives from a private equity fund’s outside investors, typically supplemented by debt. Once acquired
by private equity a company may become more competitive or could be saddled with an unsustainable level of
debt, depending on the objectives and skills of the private equity firm.
A general partner (GP) manages a private equity
fund. The GP is usually the private equity firm that
sets up the fund. All of the fund’s management deci-
sions are made by the GP, which contributes 1%-3%
of the fund’s capital.

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