Infographic: How does private equity work?

Private equity (PE) firms buy unlisted companies with the aim to increase their value.  After a few years, they will sell them, creating a profit for investors.

How do investors generate value?

1. Through transforming an investment:

• Improvement of operational efficiency.
• Guide on succession in the family business.
• Institutionalise processes. 

1. Through growing an investment: 

• Acquisitions.
• Increase scale.
• New products and services.
• Geographic expansion. 

What are the key types of strategies?

• Buyout: A change in the ownership of an established company.
• Turnaround: Investing in companies that have run into operating difficulties.
• Venture: Funding start-ups or early-stage companies that are at the beginning stages of their journey.
• Growth: Investing in established companies that require high levels of capital. 

How to invest in private equity?

• Private Equity firms or general partners will set up a PE fund and raise money from limited partners.
• Limited partners or investors invest in the company in exchange for shares. This can be done through an Asset Manager, Pension Fund, etc.
• Two ways of doing so:
1. Invest directly
2. Co-invest directly alongside the General Partner 

Why it’s easier to access data today?

Individual investors now have more options to invest in private equity with the help of skilled specialists

• Introduction of new fund structure (e.g. ELTIF/LTAF)
• Lower minimum threshold
• Regulated framework
• Technology developments (e.g. new platforms, automated client registration, digital reporting)