What is Private Equity Fund and its Investment Process?

Category : Knowledge Center

Private equity funds are a type of investment vehicle used by wealthy individuals and institutional investors to invest in privately held companies. These funds are managed by private equity firms, and their goal is to generate significant returns on investment by acquiring, improving, and eventually selling or taking private companies public. Here’s how private equity funds work:

Fund Establishment: Private equity funds are created as legal entities, often as limited partnerships, or limited liability companies. These funds are structured to pool capital from investors who want exposure to private company investments.

Investor Capital: Institutional investors like pension funds, endowments, and wealthy individuals contribute capital to the fund. These investors become limited partners in the fund and provide the financial resources needed for investments.

Investment Process:

Target Selection: The private equity firm identifies target companies for investment. These companies are typically private and not publicly traded on stock exchanges.

Capital Deployment: The fund manager invests the pooled capital into these target companies by acquiring equity stakes. The fund often takes a controlling or significant ownership position in these companies.

Active Management: Private equity firms take an active role in the management of their portfolio companies. They work to improve operations, reduce costs, and increase profitability. This can involve changes in management, strategic direction, and operational restructuring.

Exit Strategy: Private equity funds have a finite lifespan, usually around 7 to 10 years. During this period, they work on improving the value of their portfolio companies. The ultimate goal is to exit these investments with a significant profit.

Exit Options:

Sale to Another Company: The private equity firm may sell the portfolio company to another corporation or private equity firm.

Initial Public Offering (IPO): Some portfolio companies may go public through an IPO, allowing the private equity firm to sell its shares on the stock market.

Secondary Buyout: In some cases, another private equity firm may buy the portfolio company.

Recapitalization: The portfolio company may issue debt to provide returns to the private equity fund while maintaining ownership.

Accredited Investors: Private equity funds are usually only open to accredited investors who meet certain financial criteria set by regulators. This ensures that only experienced and financially capable individuals and institutions can participate.

Specialization: Private equity funds can specialize in various industries, stages of a company's life cycle (venture capital, growth capital, buyouts), or types of investments (e.g., distressed debt or real estate).

Libord Advisors Private Limited is a company that specializes in guiding and facilitating private equity deals across various industries. We have expertise in structuring deals, negotiating terms, and executing transactions. We also have strong relationships with major global private equity players, allowing them to connect companies with potential investors. Our knowledge of the private equity investment process helps companies secure the necessary funding to grow and thrive.