Private Equity

Question 1

What is Private Equity?

Answer 1

Private Equity refers to the structure of a fund.

Question 2

How are Private Equities structured?

Answer 2

PEs are structured as a partnership. The general partners setup a PE fund and use the funds from limited partners to invest.

Question 3

How do PEs make money?

Answer 3

They charge limited partners management fees (typically 2%) and carried interests (typically 20%).

Question 4

What are the two popular PE strategies?

Answer 4

• Venture Capitals: 100% successive equity investments in companies in their take-off stage (typically technology firms). They invest in new applications of existing technologies (and not in new technologies).
• Buyouts: Majority stake in mature companies that are not fulfilling their potential. Typically the buyout occurs with a significant amount of debt, and the strategy is often referred to as leveraged buyout (LBO).

Question 5

What are the main exit strategies for a PE?

Answer 5

• Sell to another fund.
• Sell to another company.
• IPO.
• Dividend recapitalisation.
• Shut-down or bankruptcy.

Question 6

Where on FactSet can you find PE data?

Answer 6

• Idea Screening.
• Company/Security tab.