Private Equity

Private equity firms raise money from institutional investors, such as pension funds, insurers and endowments, and wealthy individuals. These investors commit capital to funds that typically last around ten years, managed by the private equity firm.

The term private equity is often used broadly to include venture capital and growth equity, but it most commonly refers to buyouts, in which firms acquire controlling stakes in established companies, often using significant borrowing, in deals known as leveraged buyouts.

After buying a company, private equity firms aim to increase its value, for example by improving management, cutting costs, expanding into new markets, making acquisitions or reorganising operations. They then sell the company, usually within three to seven years, to another company, another private equity firm or public investors through a stock market listing.

For example, a private equity firm might buy a regional chain of veterinary clinics, expand it through acquisitions across the country and sell it several years later for a much higher price.

Supporters argue that private equity improves company performance. Critics point to high fees, heavy use of debt, job cuts and cases where companies were weakened by the debt placed on them.