Private Equity Pt. 1


The broad term ‘asset management’ has come to include a variation of strategies, industries, and carriers. One of these sectors is private equity (PE), which has dramatically increased in both popularity and overall size over the last two decades. Just in sheer dollar value, the assets under management (AUM) within this sector, in one decade alone (2004-2016), grew by $1,778 Billion, or 251.1%. PE has become the hottest attraction in the world of high finance, and is attracting the youngest and most promising talent from across industries. 

Very generally speaking, private equity entails the management of assets (equity) that is not publicly traded, with the end goal to exit profitably from a position within a period, commonly 4 to 7 years. This means that private equity firms, managers, and funds will obtain significant positions in privately owned companies, land, commodities, and real estate.  

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Financing and Managing

The most common structure within PE consists of general partners, limited partners, and a private equity fund. 

General partner represents the private equity firm and/or manager, with the necessary staff and infrastructure. Limited partners are the investors, who, by financing the fund, hope to get an eventual return on their capital. The types of investors can be extremely diverse, from high net worth individuals, to pension funds, banks, and sovereign wealth funds. The common factor among these limited partners is the value of their funding, as the minimum requirement can range from $250,000 to millions, making it harder for the average citizen to invest.

The management of the fund is handled by the general partner, who is responsible for handling the current portfolio, picking opportunities for new portfolio additions, and choosing portfolio inclusions ready for exit. The reason for the aforementioned minimum requirement is to have sufficient money to purchase a strong influence in their private investment. This should result in more money to be distributed between the general and limited partners

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Kariem HafezComment