What is Private Equity?

The objective of a Private Equity fund is to invest in companies with solid fundamentals and significant growth prospects.

The Blackroom Team
The Blackroom Team

The objective of a Private Equity fund is to invest in companies with solid fundamentals and significant growth prospects. Private Equity funds will then seek to develop the company before selling it in order to make a capital gain. A financial investor will analyze these aspects of the transaction before making an investment decision. An investor can make an investment decision that differs from the judgment of managers, hence the importance of partnership with them

Private Equity is an investment in non-listed companies.

Private equity funds are not listed on the stock market, but rather managed by professional fund managers who try to create value for their investors through risky investments. In contrast to traditional stocks and bonds which offer a fixed return every year, private equity fund managers aim to generate returns that exceed the risk of holding this type of asset over time. The most common way for investors to participate in private equity is through a fund of funds (a pool of assets that invest in multiple private equity funds).

Private Equity investment has a limited life span (typically 5 to 15 years). Once you have invested in a private equity fund you cannot sell out any time before it expires at the end of its term length. This means that if there is an interesting opportunity elsewhere after 5 years then your money will be tied up until your original plan finishes (unless you can find another investor willing to buy out yours).

The capital commitment required varies depending upon how much risk you want/need or what kind of return(s) needed based on other alternatives available at same time frame as well as expected exit period from investments within said period etc..

The objective of a Private Equity fund is to invest in companies with solid fundamentals and significant growth prospects.

Private Equity (PE) is a fund investment in non-listed companies. The objective of a Private Equity fund is to invest in companies with solid fundamentals and significant growth prospects.

In PE, funds will then seek to develop the company before selling it in order to make a capital gain.

Private Equity funds will then seek to develop the company before selling it in order to make a capital gain.

The fund will seek to maximize the value of the company, increase its value or optimize its value. This can be achieved through several types of short to mid term projects: structuring the right Comex and reorganizing teams accordingly, optimizing the IT stack and launching digital transformation projects, aligning to a M&A strategy. All those strategic initiatives will be governed through board meetings, usually every quarter.

A financial investor will analyze these aspects of the transaction before making an investment decision.

You don’t have to be an expert in private equity to understand the basics of how it works. To begin with, financial investors will analyze these aspects of the transaction before making an investment decision:

  • A financial analysis of the company's offer, its market, its competition and its future development.
  • An analysis of the company's financials (the most important document in this type of transaction).
  • An analysis of the company's strategy and capabilities.

And finally:

  • An analysis of legal and tax aspects that could affect this deal

All those audits form a due diligence process that, even though it’s not legally required, is strongly recommended for any M&A transaction. You can learn on the due diligence process and what to put in it here: 

An investor can make an investment decision that differs from the judgment of managers, hence the importance of partnership with them.

Now, you may be thinking, “Of course an investor will bring his expertise to the table. We’ve all heard that one before!” But what I mean by this is not just that an investor makes decisions based on his understanding of a particular industry or sector. It means that an investor can make an investment decision that differs from the judgment of managers, hence the importance of partnership with them.

The potential for disagreement between investors and managers is leveraged when capital markets are deep (as they are today) because it allows investors to invest across different sectors and geographies—and therefore allocate their capital more effectively than if they were limited by geography or industry. So when you invest in private equity funds through your broker/dealer or fund manager at work, you aren't just getting access to their funds: You're also gaining access to their network.

More and more often, PE professionals also partner with experts that will help liaise their financial targets with the executives' operations of the portfolio company. Depending on what’s been decided during the due diligence phasis, those external partners can have ESG background, marketing expertise and so on.

Becoming a financial investor will lead you to analyze different aspects of your transaction, but also to make decisions that may differ from those of the managers!

Some people say that becoming a financial investor is easy. After all, what could be simpler than investing in a company and then waiting for it to make you money? Well, don't be fooled! In fact, managing investment partnerships requires many skills and specific knowledge of different aspects of the transaction. The most important thing to remember is that you'll be working closely with managers who want your partnership in order to carry out their strategy on an ongoing basis. You'll need to study the financial, strategic, legal and tax aspects of each transaction before making decisions about whether or not you want them involved in your portfolio!

In addition to all this analysis, as an investor in private equity companies (as opposed to private equity funds), there are several things you can expect:

Conclusion

Private Equity is an investment vehicle that allows you to invest in private companies. If you are interested in this type of investment, then you should definitely get in touch with a financial advisor who can help you make the right decision!

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