Private Equity Funds

Private equity (PE) is an asset class which involves investing in businesses that aren’t publicly traded. It’s typically done through PE funds operated by the fund managers who act as the intermediaries between the investors and the companies.

Private equity operates in the following way:

1. Fundraising. The first step in the private equity process is raising capital. Private equity companies establish funds and solicit investments from limited partners.
2. Sourcing and deal-making. Once the funds are raised, private equity companies scout for further investment opportunities that meet their criteria. They perform extensive due diligence on target companies, assessing investment performance, market position, and growth potential. If a suitable target is identified, the company negotiates a deal with the company’s owners, often involving leveraged buyouts where substantial debt is used to finance the acquisition.
3. Asset management. After acquiring a stake in a business, private equity companies work with their fund management team to improve operations and increase value. 
4. Exit strategies. The final phase of PE investing involves liquidating investments by selling the improved portfolio companies for a profit or divesting due to an IPO.

PE investments aim to gain returns from capital appreciation and dividends.

The Benefits of Investing in Private Equity Funds

Similar to real estate funds, these alternative investments bring:

• Expertise. Experts specializing in operations, finance, and strategy work for PE firms. Thales Capital professionals can help transform underperforming companies into market leaders.
• Patient capital. PE Investors wait for a longer duration to realize returns, allowing companies to undertake long-term value-creation strategies without the pressure of quarterly earnings requirements faced by publicly-traded companies.
• Access to capital and networks. PE firms can provide portfolio companies with capital for growth initiatives and access to their extensive professional networks for strategic partnerships or talent recruitment.

Like crypto funds, private equity investments aim to generate high returns and offer advantages for each party.

Private Equity Fund Structure and Types of Investments

A PE fund has a general partner (GP) who controls and manages the investments and a group of limited partners (LPs) who contribute capital to the fund. The GP provides expertise and resources on sourcing, executing, managing, and exiting investments while the LPs serve as passive investors.

PE funds focus on:

• Venture capital. They invest in brand-new startups with significant potential for further success in exchange for equity ownership. These investments are high-risk, but can offer spectacular returns if the company succeeds.
• Growth equity. These funds invest in mature companies that are experiencing rapid growth or require capital to finance expansion or acquisitions. The investment is often in the form of equity, but it may involve structured financing.
• Buyouts. They acquire controlling stakes in mature brands intending to implement operational improvements, financial restructuring, or strategic repositioning to increase the value of the business.
• Distressed debt. Their specialty is debt securities or loans issued by companies that are experiencing financial distress or facing bankruptcy. The strategy focuses on providing resources and knowledge to help turn around and maximize the recovery value of these investments.

However, some investment funds also invest in specific industries, such as infrastructure and real estate.