- Private equity firm
A private equity firm is an investment manager that makes investments in the private equity, i.e. an equity security class that are not publicly traded, of operating companies through a variety of loosely affiliated investment strategies including Leveraged Buyout, Venture Capital and Growth Capital. Often described as a
financial sponsor, each firm will raise funds that will be invested in accordance with one or more specific investment strategies.
Typically, a private equity firm will raise pools of capital, or private equity funds that supply the
equitycontributions for these transactions. Private equity firms will receive a periodic management feeas well as a share in the profits earned ( carried interest) from each private equity fundmanaged.
Private equity firms, with their investors, will acquire a controlling or substantial minority position in a company and then look to maximize the value of that investment. Private equity firms generally receive a return on their investments through one of the following avenues:
* an "
Initial Public Offering" (IPO) - shares of the company are offered to the public, typically providing an partial immediate realization to the financial sponsor as well as a public market into which it can later sell additional shares;
* a "
merger" or " acquisition" - the company is sold for either cash or shares in another company;
* a "Recapitalization" - cash is distributed to the shareholders (in this case the financial sponsor and its private equity funds either from cash flow generated by the company or through raising
debtor other securities to fund the distribution.
Ranking private equity firms
According to an updated 2008 ranking created by industry magazine Private Equity International [ [http://www.peimedia.com/resources/Conference/downloads/PEI50_Brochure_final.pdf Top 50 PE funds] from Private equity international] (The PEI 50), the largest private equity firms include The Carlye Group,
Kohlberg Kravis Roberts, Goldman Sachs Principal Investment Group, The Blackstone Group and TPG Capital. These firms are typically direct investors in companies rather than investors in the private equity asset class and for the most part the largest private equity investment firms focused primarily on leveraged buyouts rather than venture capital.
Private Equity Intelligence, an independent data providers provides a ranking of the 25 largest private equity investment managers. Among the largest firms in that ranking were
AlpInvest Partners, AXA Private Equity, AIG Investments, Goldman Sachs Private Equity Group and Pantheon Ventures.
Because private equity firms are continuously in the process of raising, investing and distributing their private equity funds, capital raised can often be the easiest to measure. Other metrics can include the total value of companies purchased by a firm or an estimate of the size of a firm's active portfolio plus capital available for new investments. As with any list that focuses on size, the list does not provide any indication as to relative investment performance of these funds or managers.
Private equity firms and private equity funds: an Illustration
The following is an illustration of the difference between a private equity firm and a
private equity fund:
Private Equity Firm
Private Equity Fund
Private Equity Portfolio Investments (Partial List)
Kohlberg Kravis Roberts& Co. ( KKR)
KKR 2006 Fund, L.P.
($17.6 billion of commitments)
Alliance Boots Dollar General Energy Future Holdings Corporation First Data Corp Hospital Corporation of America(HCA) Nielsen Company NXP Semiconductors
Private equity fund
List of private equity firms
History of private equity and venture capital
* [http://www.tuc.org.uk/extras/peguide.pdf Private equity – a guide for pension fund trustees] . Pensions Investment Research Consultants (PIRC) for the Trades Union Congress.
*Krüger Andersen, Thomas. [http://isis.ku.dk/kurser/blob.aspx?feltid=155330 Legal Structure of Private Equity Funds] . Private Equity and Hedge Funds 2007.
*Prowse, Stephen D. [http://www.dallasfed.org/research/er/1998/er9803c.pdf The Economics of the Private Equity Market] . Federal Reserve Bank of Dallas, 1998.
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