What is private equity fund

Private equity means providing private financing for companies in or we can say it is raising money and investing it into companies in order to make them perform better and then gaining a return off.

Improvement in productivity of performance of few very prominent name in the private equity space for example Blackstone group, vista capital partner, KKR and the Carlyle group.

So make sure you check out their website.

Afterward, if you want to find out a bit more about their investment strategies and how they have become a specialist in the private equity space and what they actually do.

Now one very key distinguishing factor to be aware of whenever you are thinking about private equity

There are these two terms the LP and the GP.

What’s in it for me ?

1. Difference between LP’S and GP’S
2. How do private equity firms and their partners make money?
3. The different private equity strategies
   • Distressed funding
   • Leveraged buyout
   • Real state
   • Venture capital
4. Famous private equity-backed businesses
5. Conclusion
6. Faq

Difference between LP’S and GP’S

The LP stands for the limited partner and the GP stands for the general partner. Limited partners are the individual and the companies or Institutions who are investing into the private equity firms.

so, for example, I might be the PE firm I will be a GP for a general partner who is coming up with the ideas and doing the investing and I am going to my client’s high net worth individuals large institution to give me money.

So the people or the companies that give me money they are limited partner.

They have limited liability is bare me I am a General partner I have full liability and I am responsible for managing the portfolio therefore the private equity investments and inviting them in the different businesses coming up with ideas.

So the general partner is more reliable than the Limited partner.

How do private equity firm and its partners make money?

Private equity follows 2 and 20 fee structure 2 is the management fee and the 20 is the performance fee but it’s not always going to be 2 and 20.

Some organization might do 1 and 15 or 1 and 10 or 2 and 15 so it tends to fluctuate but the norm for the industry throughout history has tended to be at 2 and 20 fee structure.

Afterward there 2 and 20 fee structure simply means you get 2% every year for managing the client money and investing it and the 20% is something you get if you exceed a certain return

so you might say to your client I will get you a 5% written over excess amount of time period and if I do that I am going to get 20% but until I do that I am going to get only 2% management fees.

You might say to your client over the next year I am going to manage your money and that’s gonna cost you 2% so your gonna pay me at 2% management fee for that I am gonna get you a 5% return

however if I get you a return that’s more than 5% then on everything above that hurdle rates which is the 5% and I am gonna take 20%.

So that the 20% performance and that incentives the private equity managers are the general Partner to kind of exceed expectation also get an as high return as possible the downside of the flip side because private equity Returns are great but that comes with a lot of risks.In conclusion we can say it is great but too risky.

The different private equity strategies

The types of strategies do PE investors pursue and there are five main types

Distressed funding

It is basically where you are investing in a passive company that you think and heavily be improved it is called distressed funding because the companies probably struggling and so you would go in and invest in different parts of it with the hope of turning around and then selling it off.

So you know to a larger company and taking the profit or just doing a public listing also making profits from the turnover of a poor company to a stronger company that distressed funding.

Liveraged buyout

This is where you literally takeover of whole company and you replace the management after that make sure there run more smoothly and better than they already are and as a result you get return from other selling that company to another company or publicly listing it and getting a return for the improvement that company has made.

Real state

This is where you are investing in real estate projects weather is commercial real estate whether it’s non-commercial

So you are investing in property development project and all the time if those tend to have good rental yields or do well after being sold or in the property market to get the return for that.

Fund of funds

This is where you are investing in a fund of various different funds to a private equity venture has lots of different private equity Investments ideas you are investing in that and it takes Likewise The returns cross those different funds so there is a fund of funds investing.

Venture capital

This is where you are investing and not to go and start companies and then you get some equity in that Idea or that company and then you get a return so that’s venture capital.

So the example of some venture capital backed business

• Wework
• SpaceX
• Airbnb
• Unity
• Coinbase

Also read – How to get funded by angel investor

Famous private equity backed businesses

• Blackstone
• Apax
• Everstone
• The carlyle group

Conclusion

Therefore Private Equity is one of the important sources of capital in business not for the finance they will guide the young startup in all their aspect ranging from guiding the growth financially and making their step strong into the financial market This is the whole essential procedure needed steps to get funding by Private Equity that can be done alone without any help easily and will be less time taken process.

Faq

Gurpreet Chawla

Hi I’m Gurpreet singh, Engineer turned Digital Marketer | Entrepreneur |Mechanical Engineer|Visit gurpreetchawla.in