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Private Equity

Private equity firms buy stakes in private companies with the goal of making a profit by later selling those stakes at a higher price. Private equity includes venture capital funding small new companies, growth capital for existing companies to expand, and leveraged buyouts where firms buy public companies and take them private. Private equity funds are typically closed-end and raise capital from institutional investors. If the investments are successful, profits are shared with general partners receiving 20% of profits as carried interest and limited partners receiving the remaining 80% proportional to their investment. Current trends include more specialized private equity in specific industries and locations as well as greater globalization and regulatory scrutiny.

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45 views10 pages

Private Equity

Private equity firms buy stakes in private companies with the goal of making a profit by later selling those stakes at a higher price. Private equity includes venture capital funding small new companies, growth capital for existing companies to expand, and leveraged buyouts where firms buy public companies and take them private. Private equity funds are typically closed-end and raise capital from institutional investors. If the investments are successful, profits are shared with general partners receiving 20% of profits as carried interest and limited partners receiving the remaining 80% proportional to their investment. Current trends include more specialized private equity in specific industries and locations as well as greater globalization and regulatory scrutiny.

Uploaded by

akpanyap
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Private Equity

PROF WILLIAM COFFIE


Outline
• Concept of private equity
• The private equity firm
• The private equity fund
• Private equity deals
• Profit sharing
• Important trends
What is Private Equity?
• Private Equity firms buy stakes in private companies with hope of
making a profit by later selling those stakes for more than was initially
invested.
• Private equity raises equity as well as leverage capital privately
Private Equity
• Venture Capital/Angels: provide seed funding for mostly small and/or
new firms
• Growth Capital: for existing firms to grow
• Leverage Buy-Out (LBO): Buy public limited(i.e. listed) company
mostly with debt and take it private. The company can later be taken
back to public.
The Private Equity Firm

• Mostly closed-end i.e. not listed/public


• Few are listed e.g. 3i
The Private Equity Fund
Profit Sharing
Investment Money In Money Out Profit
Osofo Co. $150m $300m $150m
Moko Co. $100m $200m $100m
Sika Co. $250m $400m $150m
Hajia Co. $25m $0m ($25m)
Totals $525m $900m $375m

• Remember that LPs get all their initial money (i.e. capital invested)
back, of course
Profit Sharing:
GPs get “Carried interest”
LPs:
The Firm: William Kapital
Public Pension

GPs Bob Dan Sally Doug


University Endowment

Jnr Jnr Jnr Jnr Jnr Jnr Jnr Jnr


Sovereign Wealth Fund

20% of Profit Wealthy Family


= $75m

80% of Profit = $300m


(Share Pro-rata)

The Fund: WK Fund I


Final realized Profit: $375m
Time to Raise the Next Fund
Important Trends in Private Equity Today
• Specialization: In terms of industry and geography.
• Regulation: Greater scrutiny from regulators.
• Globalization: Going to more/new markets.

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