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The Private Equity (PE) industry is a very important part of the overall financial services industry. It is made up of thousands of companies around the world that play a key role in financing private companies that are not traded publicly on any stock exchange.
The capital used by PE firms to fund their activities are normally raised from institutional investors (such as large pension funds or banks), insurance companies, high net worth individuals/families and the partners at the PE firm. PE firms compete for investors' capital by developing a comprehensive business strategy and through developing a solid track record of successful investments. Once funds are committed, the PE firm can start to make investments and typically would aim for investments in 7-10 portfolio companies per fund. Each fund usually has a pre-determined life span, in which at some point the investment will be realized through a planned sale or exit. PE funds and firms are distinctly different from hedge funds, in that hedge funds normally invest in and develop a proprietary trading platform of securities rather than making investments in operating private companies. Venture capital funds are a distinct sub-set of the PE industry that invest in early or development stage private companies. Most PE firms use some degree of leverage or borrowing to finance an acquisition, and therefore will avoid the inherent risk of investing in early stage companies.
Many PE firms specialize in specific types of deals, industries or deal size.
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