What REALLY is Private Equity? What do Private Equity Firms ACTUALLY do?

00:07:23
https://www.youtube.com/watch?v=tbRkdm80cFs

Resumo

TLDRThis video provides an overview of private equity firms, emphasizing their focus on acquiring private companies and engaging in equity investments. It explains the specialization of private equity firms in different types of target companies based on their lifecycle stages and compares private equity investments to hedge funds, particularly in terms of investment horizons. The typical structure of private equity firms is detailed, highlighting the roles of general and limited partners and the compensation arrangements. Lastly, the video outlines the lifecycle of a private equity fund, including stages from collecting capital to exiting investments, emphasizing the hands-on management approach of most private equity firms throughout the investment period.

Conclusões

  • 🏢 Private equity firms acquire non-listed companies for equity investments.
  • 🔍 Different PE funds target specific life cycle stages of companies.
  • 🔄 Distressed investments show overlap with hedge funds but differ in horizons.
  • 📈 PE firms typically focus on growth through active management.
  • 📝 Limited partnerships and closed-end funds are common structures.
  • 💰 The 2 and 20 compensation structure rewards general partners.
  • ⏱️ PE investments usually last 5-10 years before exit.
  • 🏦 Economic conditions and buyers affect exit timing.

Linha do tempo

  • 00:00:00 - 00:07:23

    Private equity (PE) firms specialize in acquiring private companies, focusing on equity investments. They often target companies at different life cycle stages, from high-growth startups to stable, established firms, and sometimes distressed companies. PE firms typically aim for long-term investments, acquiring major stakes to influence management and drive growth over several years before exiting through sales or public listings. The video outlines the structure of PE firms, primarily as limited partnerships or closed-end funds, detailing the roles of general and limited partners, management fees, and carried interest. The lifecycle of a PE fund includes fundraising, an investment period for selecting and managing target companies, and eventual divestiture, with the timing of exits influenced by economic conditions and market factors.

Mapa mental

Vídeo de perguntas e respostas

  • What do private equity firms do?

    Private equity firms acquire private companies, focusing on equity investments to improve performance and grow businesses.

  • What strategies do private equity firms pursue?

    They pursue strategies based on the lifecycle of target companies, including investing in startups, established firms, or distressed companies.

  • How are private equity firms structured?

    They are typically structured as limited partnerships or closed-end funds.

  • What is the role of general partners in private equity firms?

    General partners manage the fund, select target companies, and provide post-investment advisory.

  • What is the compensation structure for general partners?

    General partners typically receive a management fee of 2% and 20% of profits after breakeven.

  • What is the typical investment lifecycle of a PE fund?

    It includes capital collection, an investment period, management of investments, and eventual divestiture.

  • How long do private equity investments usually last?

    Private equity investments typically last five to ten years before exiting.

  • What factors influence the timing of divestiture?

    Economic conditions, market volatility, and finding the right buyer all influence divestiture timing.

Ver mais resumos de vídeos

Obtenha acesso instantâneo a resumos gratuitos de vídeos do YouTube com tecnologia de IA!
Legendas
en
Rolagem automática:
  • 00:00:00
    what do private equity firms actually do
  • 00:00:03
    which are the different types of
  • 00:00:05
    strategies they pursue and what is the
  • 00:00:08
    typical structure of a private equity
  • 00:00:10
    firm these are some of the questions we
  • 00:00:13
    would try to answer in this video okay
  • 00:00:16
    but first things first why the name
  • 00:00:19
    private equity let's break it down
  • 00:00:22
    private because these are funds that are
  • 00:00:26
    mainly interested in acquiring private
  • 00:00:28
    companies that have not been listed on a
  • 00:00:31
    stock exchange and equity because PE
  • 00:00:34
    funds are exclusively focused on equity
  • 00:00:38
    investments what about specialization
  • 00:00:41
    can we say that certain PE funds prefer
  • 00:00:45
    engaging with a specific type of target
  • 00:00:47
    companies the short answer is yes most
  • 00:00:51
    private equity firms specialize in deals
  • 00:00:54
    with a specific type of targets based on
  • 00:00:57
    the life cycle stage of these targets
  • 00:01:00
    some pease are interested in young firms
  • 00:01:03
    with high growth perspectives and a
  • 00:01:06
    promising management team while others
  • 00:01:09
    are focused on established companies
  • 00:01:11
    with stable cash flows leverage buyout
  • 00:01:15
    transactions in addition it isn't rare
  • 00:01:18
    to see private equity investments in
  • 00:01:21
    distressed companies actually distressed
  • 00:01:24
    investments are one area of activity
  • 00:01:27
    where there is some overlap between
  • 00:01:29
    private equity and hedge funds both
  • 00:01:32
    types of funds could invest in a
  • 00:01:34
    distressed company which is public hedge
  • 00:01:37
    funds are unlikely to engage with a non
  • 00:01:39
    public firm the main difference however
  • 00:01:42
    is their investment horizon a private
  • 00:01:45
    equity would typically try to acquire
  • 00:01:48
    the entirety of shares of the target
  • 00:01:50
    delist it change management introduce
  • 00:01:54
    measures oriented towards improving
  • 00:01:56
    financial performance and then be
  • 00:01:59
    patient for at least a couple of years
  • 00:02:02
    before exiting the investment through a
  • 00:02:04
    sale or a new listing a hedge fund
  • 00:02:07
    investment on the other hand would
  • 00:02:10
    likely have a very short term duration
  • 00:02:12
    the
  • 00:02:13
    fund would buy the securities of
  • 00:02:15
    distressed companies when they believe
  • 00:02:17
    that there is a good chance of reselling
  • 00:02:20
    these securities had a profit in the
  • 00:02:22
    near term not longer than two to three
  • 00:02:25
    months this comparison provides a pretty
  • 00:02:28
    good insight of what most private equity
  • 00:02:31
    deals try to achieve acquire a large
  • 00:02:34
    stake in a business preferably a hundred
  • 00:02:37
    percent but not less than 50 percent
  • 00:02:39
    position the business for growth through
  • 00:02:42
    active involvement advisory and if
  • 00:02:45
    necessary management rotations and
  • 00:02:47
    substitutions have the patience to grow
  • 00:02:49
    the business improve its profitability
  • 00:02:52
    and then exit the investment in a five
  • 00:02:55
    to ten year period of course the art of
  • 00:02:59
    the private equity profession is to bet
  • 00:03:01
    on the right companies and then
  • 00:03:03
    successfully provide guidance in order
  • 00:03:05
    to optimize their chances of being
  • 00:03:07
    successful great let's talk about fund
  • 00:03:11
    structure shall we
  • 00:03:12
    there are two main ways in which private
  • 00:03:15
    equity firms are typically structured a
  • 00:03:17
    limited partnership or a closed-end fund
  • 00:03:21
    limited partnerships are much more
  • 00:03:24
    popular in the US while closed-end funds
  • 00:03:27
    are prevalently used in Europe in a
  • 00:03:30
    limited partnership we have two types of
  • 00:03:33
    partners general and limited general
  • 00:03:36
    partners are involved with the
  • 00:03:38
    management of the fund target company's
  • 00:03:40
    portfolio selection and post investment
  • 00:03:44
    advisory limited partners role is to
  • 00:03:47
    provide investment capital general
  • 00:03:50
    partners charge the partnership a
  • 00:03:52
    management fee and have the right to
  • 00:03:54
    receive carried interest this is the
  • 00:03:56
    famous to 20 percent compensation
  • 00:03:59
    structure where 2% is paid as a
  • 00:04:02
    management fee even if the fund isn't
  • 00:04:05
    successful and then 20% of all proceeds
  • 00:04:09
    after break-even are received by general
  • 00:04:12
    partners in some cases a hurdle rate is
  • 00:04:15
    added to the partnership agreement which
  • 00:04:17
    defines a certain minimum rate of return
  • 00:04:20
    that needs to be achieved before
  • 00:04:22
    accruing carried interest to general
  • 00:04:25
    partners limit
  • 00:04:26
    partners receive all of the funds
  • 00:04:28
    proceeds - what has been paid to general
  • 00:04:31
    partners a closed-end fund is different
  • 00:04:35
    has it typically involves a newly
  • 00:04:38
    created entity investors provide capital
  • 00:04:41
    to that entity and the management firm
  • 00:04:44
    signs a management contract with the
  • 00:04:46
    entity compensation schemes remain very
  • 00:04:49
    similar under this type of structure in
  • 00:04:52
    most cases the classical 220 arrangement
  • 00:04:55
    plus a hurdle rate for management after
  • 00:04:58
    which are accrued 20% of carried
  • 00:05:01
    interest very well the typical life
  • 00:05:04
    cycle of a PE fund looks in the
  • 00:05:06
    following way a period allowing for the
  • 00:05:10
    collection of investments in the fund
  • 00:05:11
    which can be as short as a couple of
  • 00:05:14
    months and as long as two or three years
  • 00:05:17
    largely this depends on the reputation
  • 00:05:20
    of the management firm and the demand
  • 00:05:22
    for their services within the investment
  • 00:05:25
    community established players in the
  • 00:05:27
    industry have a significant edge the
  • 00:05:31
    next stage of a funds life is the
  • 00:05:33
    investment period which typically lasts
  • 00:05:36
    up to five years in this time the
  • 00:05:39
    general partners or management company
  • 00:05:42
    depending on the type of fund structure
  • 00:05:44
    chosen would search for suitable target
  • 00:05:47
    companies fitting the funds strategy
  • 00:05:49
    once an investment has been made it
  • 00:05:52
    would be up to fund managers to decide
  • 00:05:55
    which is the right way to approach the
  • 00:05:57
    business and optimize its performance
  • 00:06:00
    advice for management and even
  • 00:06:02
    management substitutions are very
  • 00:06:05
    frequent when a private equity takes
  • 00:06:07
    control most PE firms are very hands-on
  • 00:06:11
    throughout the entire lifecycle of the
  • 00:06:13
    investment they meet frequently with
  • 00:06:16
    management and are keen on ensuring that
  • 00:06:18
    the business is on the right track of
  • 00:06:21
    being ready to be sold or listed on a
  • 00:06:23
    stock exchange of course the final stage
  • 00:06:27
    is divestiture and understandably it
  • 00:06:30
    could last several years in some cases
  • 00:06:33
    even five various factors determine when
  • 00:06:37
    is the best moment to exit
  • 00:06:39
    business a few examples our general
  • 00:06:43
    state of the economy market volatility
  • 00:06:45
    and quite importantly finding the right
  • 00:06:48
    buyer willing to pay the right price
  • 00:06:52
    once the entire portfolio is divested
  • 00:06:55
    the fund closes and all proceeds are
  • 00:06:58
    distributed among general and limited
  • 00:07:01
    partners in a partnership structure or
  • 00:07:03
    among investors and the management
  • 00:07:06
    company in a closed-end fund I hope this
  • 00:07:09
    video allowed you to gain a good
  • 00:07:11
    understanding of what it is that private
  • 00:07:13
    equity firms actually do in our next
  • 00:07:16
    video we'll discuss hedge funds thanks
  • 00:07:20
    for watching
Etiquetas
  • Private Equity
  • Investment Strategies
  • Fund Structure
  • Limited Partnership
  • Closed-End Fund
  • General Partners
  • Limited Partners
  • Divestiture
  • Lifecycle
  • Financial Performance