What is Private Equity?
Private Equity is an investment model that originated in the United States after World War II and later spread to the United Kingdom and France in the 1970s. Unlike public equity, which involves buying shares in publicly traded companies, private equity involves purchasing shares of private, unlisted companies. The investment fund also provides support for the company’s growth by offering equity capital, financial advice, a business network, and strategic assistance.
To finance their investments, Private Equity firms raise funds from private investors (wealthy individuals) and institutional investors (banks, investment funds, etc.). In addition to investing in unlisted companies, private equity is distinguished by the involvement of an investment fund as an intermediary in the investment process.
An investment in the real economy to support the growth of private companies
Private equity enables both individual and institutional investors to invest in the real economy, outside of financial markets. This investment provides companies with the necessary funding to support their growth, develop their projects or restructure their capital or activities.
Private Equity can also fill the gap in bank financing for companies with projects that involve risks banks are not willing to bear.
PE funds aim to achieve capital gain at the end of the investment period, typically from 5 to 7 years. The illiquidity of the investment works in the company’s favor. Il benefits from long-term support, leading to a convergence of interests between managers and investors. All stakeholders prioritize value creation over the pursuit of immediate profits.
Private Equity firms inject funds, provide experience and give advice to support innovation, facilitate recruitment and promote job creation. They contribute to the growth of the company, which can be achieved through organic growth, such as purchasing machinery or launching new products, or external growth (mergers and acquisitions).
Private equity funds come in various forms, each with different strategies and processes. The level of maturity of the targeted companies is a significant factor in distinguishing private equity funds. Some funds specialize in supporting start-ups and early-stage companies. They are known as Venture Capital funds. Others focus on development capital by supporting the growth of SMEs. Some funds help companies restructure and return to growth when in difficulty. Each phase in the life of a company requires a different risk/return trade-off and analytical approach.
Find out more about our Private Equity training program that offers:
- Comprehensive understanding of the investment process and challenges in private equity.
- Preparation for fit, brainteasing, and market sizing interview questions.
- Fundamental knowledge of accounting and financial analysis.
- In-depth understanding of corporate finance, valuation, and financial modeling.
- Exploration of financial, tax, and legal structuring issues.
- Practice with real private equity interview questions.
- Practical cases on Excel to refine financial modeling skills.