PEINVEST
Direct equity investment in private companies through buyouts, growth equity, and venture capital strategies.
Private equity encompasses the acquisition of equity stakes in private companies or the take-private of public companies. The core strategy involves acquiring businesses, improving their operations and financial profile, and exiting at higher valuations. PE firms deploy capital through buyout funds (control investments), growth equity (minority stakes in growing companies), and sector-specific vehicles. Value creation levers include operational improvements, strategic repositioning, add-on acquisitions, management upgrades, and financial engineering through capital structure optimization.
The J-curve describes the pattern of fund returns over time: initial negative returns during the investment period (due to fees and unrealized losses) followed by increasing returns as portfolio companies mature and exits occur. Most PE funds show negative returns for the first 2-4 years before turning positive.
PE firms earn revenue through management fees (typically 1.5-2% of committed capital annually) and carried interest (typically 20% of profits above a preferred return hurdle, usually 8%). Carried interest is the primary wealth driver for PE professionals.
Buyout involves acquiring majority control of mature businesses using significant leverage, focusing on operational improvements and financial engineering. Growth equity involves minority investments in rapidly growing companies with proven business models, using little to no leverage, focusing on scaling revenue and market expansion.