ABSTRACT
Private equity (PE) funds represent a collective fundingapproach wherein affluent individuals and institutional investors pool capital to acquire, restructure, and eventually sell companies for profit, primarily through leveraged buyouts (LBOs). Initially referred to as LBO funds in the 1980s, private equity funds now invest primarily in private, established companies, typically with a long-term investment horizon of 10 to 15 years. The goal is to improve company performance and exit with significant returns, often by selling to another firm or through a public offering. PE firms generate revenue through two main mechanisms: annual management fees and carried interest, which is a 20% share of the profits realized upon a successful exit. Private equity differs fundamentally from hedge funds and venture capital (VC) in terms of investment strategies, timelines, and targets. While hedge funds pursue short-term trading strategies across public markets for quick profits, PE focuses on long-term investments in mature companies. Venture capital, although similar to PE in structure, targets early-stage startups with smaller capital investments and higher risk in pursuit of innovation and rapid growth. Structurally, PE funds are typically organized as limited partnerships or LLCs, with general partners managing the fund and assuming liability, while limited partners contribute capital and remain passive. These funds are “closed,” meaning they stop accepting new capital after an initial fundraising period. Investors provide capital commitments, which are drawn down over time through capital calls to finance specific acquisitions and related expenses. A core element of private equity investment is due diligence, a rigorous assessment process evaluating the financial, legal, operational, and commercial viability of target companies. This ensures sound investment decisions and minimizes risk. The acquisition of public companies by PE firms, known as take-private transactions, involves identifying undervalued public firms, conducting extensive due diligence, negotiating terms, and implementing value-enhancing strategies post-acquisition. Overall, private equity serves as a long-term investment vehicle that leverages strategic restructuring and operational improvements to drive value creation in private companies. The model emphasizes deep analytical rigor, patient capital, and active management to deliver strong returns to investors.
INTRODUCTION
A private equity fund is a group of investors that pool their resources to acquire a company with the intention of reviving and transforming it. and company using a fancy process called a leverage buyout so a private equity (PE) as they like to be called PE fund is actually the same as a LBO fund in fact they used to be called as LBO funds back in 80’s but then they kind of fell out of favor and changed their name anyways so this actually works using a process, Private equity, as its name implies, involves the investment of capital into private companies. and Private equity firms take money from other companies and they take money from the wealthy people and they put that money together and they invest it in buying and put on sale of business after raising a certain amount so if a firm Raising a substantial amount of capital, such as £10 million, £100 million, or even £1 billion, once secured typically leads to the closure of the organization. To prevent new investors from contributing to the fund, the fund must explicitly state its investment strategy in the technology sector. or the health care industry and so what that means is that money that pool or that fund will only be invested in companies in the tech sector so tech companies or health care companies so once you’ve got this pool of money you start investing and buying different companies you work on those companies to improve them and then you sell them off at a profit in about A period of ten to fifteen years is indeed quite protracted. and so when you think of private equity you have to think very long term investing, you don’t get your money back within a month or two month if you want to Work in the private equity industry. easiest route is to work for an investment bank, in the investment banking division, those working in the investment banking move into private equity for many reasons some of which is better work-life balance, more interesting work and higher pay and salaries and bonuses.