What is Private Equity?
Simply put, private equity refers to investments in non-listed companies. Private equity funds are typically structured as a limited partnership and managed by a fund manager (the general partner). During the term of the investment, investors are required to fund capital calls up to their agreed commitment amount. The fund holds its underlying companies until they are sold, usually through an initial public offering (IPO) or a trade sale. After the sale, the fund then distributes the sale proceeds to each investor.
Private equity funds charge management fees to cover the costs of managing the committed capital. The fees are usually paid quarterly. As a general partner, the fund manager is also entitled a portion of the profits, termed “carried interest”.
Private equity investment has a long-term horizon, ranging anywhere between three to twelve years. As the investee companies are private, the investments are not liquid and therefore must be made with careful due diligence and expertise.