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Private Equity Strategies

The capital which is raised privately from investors like High Net worth Individuals, Government, institutions by a firm is called as Private Equity Capital. Hence, this capital is not traded on stock exchanges.

This capital can be used to fund for the purpose of growth of the business, expansion purposes, strengthening of balance sheet.

What is Private Equity?

Private Equity is a type of buyer who invests in private companies. PE enables the investors like HNI’s, government to invest in the ownership of the private companies. A Private Equity firm therefore raises the funds from investors, finds out the target for investment, and carries out target’s due diligence and manages this investment process on behalf of the investors. PE firms invest in various industries while some firms invest in specific industry services.

Objectives

Organizations use private equity funds for number of plans like newly formed companies may need capital for expansion. Existing company may want to expand its business geographically or it may want to acquire another related business etc. Thus Private equity firms provide necessary finance to such firms.

In a way Private Equity funds can be an alternative to mutual funds. Risk factor involved in private equity investment can be higher than that of investing in public companies shares and bonds.  So one need to do analysis of which fund is suitable for business.

Private Equity Strategies

The stage of the business in which investment is to be done is the deciding key factor of Private Equity Strategies.

  1. Venture Capital is used the investment in the early stage of the business. Venture Capitalists raise funds from High Net Individuals and institutional investors. And money thus raised is invested into newly formed firms and growth staged firms.  Venture Capital is used in the seed stage, early stage, late stage.
  2. Growth Capital as the name suggests is used in the business which is in the growth stage like it wants to expand or restructure their operations. These firms do earn the profits, but have sufficient funds for expansion purposes.
  3. In Leveraged Buyout (LBO), private equity firms buys major stake in the mature company.
  4. Mezzanine capital is a mixture of debt and equity financing which is used to finance the expansion of existing business. In case if the loan is not paid back in time, Mezzanine financing gives the lender the right to convert it into equity through which lender gets a part of an ownership.
  5. Distressed debts are securities or bonds of companies which are or becoming bankrupt. In such situation PE refers to investing in the debt of that company.

Key benefits of Private Equity

Companies which are supported by Private equity has seen growing faster than other types of companies. With private equity strategic decisions for the company can be taken. It helps increasing value to its owners.

Brief Introduction of Leveraged Buyouts

In Leveraged Buyout private equity firm purchases target firm. For this purchasing the fund is financed through debt where collateral used is target firms assets.

Private Equity and Venture Capital Differentiated

Though both Private Equity and Venture Capital firms are concerned with investing money in companies and exiting at specific time, there way of operating is different.

As said above Private Equity firms buys companies from all type of industries, Venture Capital firms buys companies from certain sectors like technology, bio technology.

Venture Capital firms are concerned with buying startup firms or the firms which are in the growth stage, Private Equity firm’s buys companies which are matured.

Private Equity firms uses mixture of equity and debt whereas Venture Capital firms use only equity for financing.

Private Equity firm’s buys majority of the stake or sometimes hundred percent in companies but Venture Capital firms buys lesser stake.

Venture Capital firms invest small amounts of money in firms whereas Private Equity firms invests large amount of firms in companies.

Note: Become a Private Equity Analyst
Learn how to perform analysis and research on private companies. Manage investment funds. Perform due diligence and financial modeling.

Private Equity Firms – Who Are the Major Players?

Private Equity firms are growing day by day. There are thousands of firms which are currently in the business. Based on the amount of investment capital raised following is the list of largest PE firms in the world:

  1. TPG Capital
  2. The Carlyle Group
  3. The Blackstone Group
  4. Kohlberg Kravis Roberts
  5. Warburg Pincus
  6. Goldman Sachs Principal Investment Area
  7. Advent International
  8. Apollo Global Management
  9. Bain Capital
  10. CVC Capital Partners

Private Equity Analysts Job profile

As this is PE, the analyst carries out research and due diligence of private companies. Overall this person has to do financial modeling and valuation of the private companies for finding out the target for investment.

For interview certain Private Equity firms offers case study so that they can judge you on your analytical capabilities.

Certain Private equity firms recruit experienced investment analysts for carrying out due diligence work. The work profile is very much similar to that of banking, and in addition one has to spend more time on Excel for valuation purpose of financials of the companies. People may have to deal with other key professionals for the purpose of consulting.

Generally, an Analyst has to perform:

  • Analytical research and valuation of the target company
  • Giving decisions on strategic development
  • Implementation of hedging strategies.
  • Portfolio monitoring
  • Industry specific research and carrying out trading activity.

Skills required for a Private Equity Analyst

Qualification

Salary Range

The salary in Private Equity firms is quite higher.An associate can earn from anywhere between USD 40K-USD 230 per annum. However as you gain experience for further post it will be somewhere USD130K-USD270K per annum. However the range given here is on the basis of overall observation. These salary ranges may vary with respect to geographical location, organization structure and manage