What is a Private Equity Firm?
To understand what a private equity firm is you essentially need to know three basic definitions. Equity is the value of an asset less any associated liability. Private equity is the equity in an asset that isn’t freely tradeable on the public stock market. A private equity firm is the controlling partner in a collection of partnerships that have come together to pool their capital and invest in an investment opportunity. While private equity firms may focus on a variety of investment strategies, including drumming up venture capital, they often buy undervalued or under-appreciated companies, improve them, and then sell them for a profit, sort of like house flipping but in the commercial setting. After buying a company, a private equity firm will remove it from the stock market. This allows the private equity firm to make tough or controversial decisions without having to answer to or release sensitive information to shareholders or the public generally. By making the company private,
Private equity typically refers to firms that take money from pensions, institutions and wealthy individuals and then invests in any number of different ways. At the roots, they are investment clubs for big money. Private equity firms come in a variety of flavors, including hedge funds (investing in high-risk, high-return alternative vehicles on the public markets), venture capital outfits (putting money in growing, nonpublic companies) and buyout shops (buying undervalued companies on the public or private markets). Some private equity firms do it all. Blackstone is a great example of this diversity, with four main operating groups, including a corporate private equity group that buys companies, a real estate group, a hedge fund group and a group that deals with advising other companies on mergers, asset sales and joint ventures. Who invests in private equity firms? You might be surprised to find out that you might, in fact, be a private equity firm investor. Blackstone’s roster of cl
I private equity firm is basically a vehicle for their LPs to invest in private companies. Who are LPs– guess what they are you and me. Generally LPs are state pension funds, university endowments, company pension funds, some banks, some insurance companies. Now how do they invest? Through contracts. The LP agreement has very specific clauses that box the GP (general partner) into what they can invest in and how much can they invest. Guess what? cerberus doesn’t have any more money to invest because of these restrictions into Chrysler. BUT, let’s now take the discussion one step further! 2). Cerberus is an investor in chrysler (common stock, some preferred I’m sure, maybe debt). So again, pierce that veil and its really pension funds etc who are investors in Cerberus (common, preferreds, debt etc). Guess who are the largest investors in US PUBLIC equities??? The same people! Guess what, the same people are public and private common equity holders..just through different vehicles! So gu
