Corporate Private Equity Firms and Funds Explained

Corporate private equity firms and funds are essentially investment vehicles that pool money from various sources, such as pension funds, endowments, and high net worth individuals, to invest in companies.

These firms and funds typically focus on acquiring a majority stake in a company, allowing them to exert significant control over its operations and strategy.

Their primary goal is to generate returns through a combination of financial engineering, operational improvements, and ultimately, the sale or IPO of the acquired company.

In terms of structure, corporate private equity firms and funds often have a limited lifespan, with a typical investment period ranging from 5 to 7 years.

Private equity firms are a crucial part of the corporate world, and understanding how they work can be incredibly valuable for businesses and investors alike.

American Securities, a leading U.S. private equity firm, invests in market-leading North American companies with annual revenues ranging from $200 million to $2 billion. They work closely with existing management teams to help portfolio companies achieve their full potential.

Thoma Bravo, another prominent private equity firm, has over $160 billion in assets under management and has acquired or invested in more than 490 software and technology companies. Their unique approach to collaboration with portfolio companies and management teams has led to innovation and growth.

Trilantic North America, a growth-focused middle market private equity firm, has committed $7.9 billion in capital to founder-, family-, and entrepreneur-led companies since 2004. The firm has raised $11 billion across seven private equity fund families and completed more than 80 investments.

Vista Equity Partners, a leading global investment firm, invests exclusively in enterprise software, data, and technology-enabled organizations. They have over $100 billion in assets under management and offer a full spectrum of capital solutions tailored to meet the specific growth needs of enterprise software companies.

Alpine Investors, a people-driven private equity firm, specializes in investments in the software and services industries. They have over $17 billion in assets under management and have three offices in San Francisco, New York, and Salt Lake City.

Charlesbank Capital Partners, an established private investment firm, has more than $18 billion of cumulative capital raised since inception. The firm focuses on several core sectors where it has extensive industry expertise, including business and consumer services, healthcare, industrial, and technology and technology infrastructure.

Here are some key characteristics of private equity firms:

American Securities has been a leading U.S. private equity firm for decades, with $29 billion in assets under management and a 30-year track record of helping companies achieve their full potential.

The firm invests in market-leading North American companies with annual revenues ranging from $200 million to $2 billion, focusing on industrials and services sectors. They work closely with existing management teams to help portfolio companies achieve their goals.

Trilantic North America is a growth-focused middle market private equity firm that has invested $7.9 billion in capital since 2004, committing to founder-, family-, and entrepreneur-led companies. They have completed over 80 investments and added more than 46,000 jobs in aggregate during their ownership periods.

Charlesbank Capital Partners has raised over $18 billion of cumulative capital and has a long history of working together as a team, with a deep specialization in the middle market and experience investing over multiple business cycles. They focus on several core sectors where they have extensive industry expertise.

Pamlico Capital has invested almost $5 billion in over 130 platform acquisitions and has built a reputation as a founder-friendly, long-term focused investor that prioritizes partnership with its management teams. They take a comprehensive and collaborative approach with each of their portfolio companies.

Thoma Bravo has acquired or invested in more than 490 software and technology companies representing over $265 billion of value, with a deep sector knowledge and strategic and operational capabilities. They pride themselves on close collaboration with portfolio companies and their management teams.

Accel-KKR is a technology-focused investment firm with $19 billion in cumulative capital commitments, focusing on software and tech-enabled businesses well-positioned for top-line and bottom-line growth. They commit to developing strong partnerships with the management teams of their portfolio companies.

Vista Equity Partners has more than $100 billion in assets under management, investing exclusively in enterprise software, data and technology-enabled organizations. They have a full spectrum of capital solutions tailored to meet the specific growth needs of enterprise software companies.

H.I.G. Growth Partners is the dedicated growth capital affiliate of H.I.G. Capital, with over $64 billion of assets under management, focusing on small-cap and mid-cap segments of the market. They make both majority and minority investments throughout North America, Europe and Latin America.

A general partner is an entity that manages a private equity fund and its investments. This can be a partnership, and their role is crucial in overseeing the fund's operations.

General partners typically earn a management fee of 2% of the fund's assets. This fee is a standard practice in the industry.

They also receive a share of the fund's profits, known as carried interest, which can range from 5% to 30%. In some cases, the carried interest is set at 20%.

General partners can pass along a share of the carried interest they earn to individual asset managers.

Hedge funds acquire very small stakes in companies or other liquid, financial assets such as bonds, currencies, commodities, and derivatives.

Their focus is on short-term profits over 12-month periods from financial, rather than operational, sources.

Hedge funds invest in highly liquid financial assets, making redemptions much easier than for private equity firms.

Because hedge funds don't control the assets they trade, they're probably riskier than private equity firms.

Hedge funds charge a management fee on assets under management and take a percentage of investment profits (carry), but these percentages tend to be lower than for private equity firms.

The required skill set for working at a hedge fund includes understanding valuation and finding mispriced financial assets.

To succeed in hedge fund recruiting, you must understand valuation and how to find mispriced financial assets.

Hedge funds vary a lot more in terms of culture because founders and portfolio managers come from more diverse backgrounds.

A hedge fund's recruiting process is often unstructured and "off-cycle", unlike private equity firms.

Hedge funds attract a more varied crowd, including investment bankers, equity research professionals, buy-side analysts at other firms, and sales & trading professionals.

A buyout fund's investment horizon is typically shorter than a private equity fund's, with buyout funds aiming to sell their original investment within a few years, usually around 3-5 years.

Private equity funds, on the other hand, have a fixed investment horizon that typically ranges from four to seven years, at which point they hope to profitably exit the investment.

Buyout funds usually source their capital from institutional funds and accredited investors, who can provide substantial capital for extended periods of time.

Private equity uses its own set of terms, some of which may be unfamiliar to those without experience in alternative assets.

Let's start with the basics: Private Equity-Speak 101.

Some terms are used only in private equity, while others may be familiar depending on your exposure to hedge funds.

In private equity, certain terms are used to describe the ratios and metrics used to evaluate investment opportunities.

A preferred return, also known as a hurdle rate, is typically set at 8% for private equity funds.

This means that limited partners must earn at least 8% on their investment each year for the general partner to be entitled to carried interest from fund profits.

The preferred return is a minimum rate of return that limited partners must earn before the general partner can start collecting carried interest.

If the fund's aggregate returns fall below the hurdle rate, limited partners can recoup a portion of the carried interest collected by the general partner from past deals, thanks to the clawback provision.

The clawback provision is a safeguard that ensures limited partners don't lose out if the fund's overall performance is poor.

Private equity funds are pools of capital to be invested in companies that represent an opportunity for a high rate of return. They come with a fixed investment horizon, typically ranging from four to seven years, at which point the PE firm hopes to profitably exit the investment.

Exit strategies include IPOs and sale of the business to another private equity firm or strategic buyer. Institutional funds and accredited investors usually make up the primary sources of private equity funds, as they can provide substantial capital for extended periods of time.

A team of investment professionals from a particular PE firm raises and manages the funds. Private equity funds profit by increasing a company's value, at which point they may sell part or all of their original investment.

Private equity firms must follow the Global Investment Performance Standards (GIPS) guidance, which includes filing a standardized disclosure since 2020. This disclosure includes multiples such as the internal rate of return (IRR) and the money multiple, as well as annualized and composite since-inception money-weighted returns.

The GIPS guidance also requires private equity firms to include the residual value to paid-in capital (RVPI) multiple in their performance reports. This multiple is calculated by dividing the net asset value of the fund's holdings by the cash flows paid into the fund.

Limited partners want to see a higher RVPI ratio, as it indicates a higher proportion of the fund's total prospective return remains unrealized and dependent on the market value of its investments.

Private equity funds committed to Global Investment Performance Standards (GIPS) include various ratios when presenting their performance to prospective investors.

Since 2020, GIPS guidance for private equity firms has mandated the filing of a standardized disclosure.

This disclosure includes all the multiples covered above, such as the investment multiple and RVPI multiple.

The investment multiple is calculated by dividing the fund's cumulative distributions and residual value by the paid-in capital.

The RVPI multiple is calculated by taking the net asset value, or residual value, of the fund's holdings and dividing it by the cash flows paid into the fund.

Limited partners want to see a higher RVPI ratio, which compares the fund's remaining value to its limited partners' up-front capital costs.

Private equity firms must adhere to these GIPS standards to provide a clear and transparent view of their performance to investors.

The GIPS standards are widely used by the private equity industry and are essential for investors to make informed decisions.

In fact, the GIPS standards have been mandated since 2020, making it a crucial aspect of private equity investing.

Private equity funds must file a standardized disclosure, providing investors with a comprehensive view of their performance.

The GIPS standards ensure that private equity firms present their performance in a consistent and comparable manner.

This helps investors to evaluate the performance of different private equity funds and make informed decisions.

Private equity firms must adhere to the GIPS standards to maintain their credibility and trustworthiness.

The GIPS standards provide a framework for private equity firms to present their performance in a transparent and consistent manner.

By adhering to the GIPS standards, private equity firms can demonstrate their commitment to transparency and accountability.

Private equity investors rely on the GIPS standards to evaluate the performance of private equity funds.

The GIPS standards are essential for investors to make informed decisions and to avoid potential biases and conflicts of interest.

Private equity firms must file a standardized disclosure, which includes various ratios and metrics.

The GIPS standards ensure that private equity firms present their performance in a clear and concise manner.

Private equity investors can rely on the GIPS standards to make informed decisions and to evaluate the performance of private equity funds.

Private equity firms must adhere to the GIPS standards to maintain their reputation and credibility.

The GIPS standards provide a framework for private equity firms to present their performance in a transparent and consistent manner.

By adhering to the GIPS standards, private equity firms can demonstrate their commitment to transparency and accountability.

Private equity investors can use the GIPS standards to evaluate the performance of private equity funds and to make informed decisions.

The GIPS standards are widely used by the private equity industry and are essential for investors to make informed decisions.

Private equity firms must file a standardized disclosure, which includes various ratios and metrics.

The GIPS standards ensure that private equity firms present their performance in a clear and concise manner.

Private equity investors can rely on the GIPS standards to make informed decisions and to evaluate the performance of private equity funds.

Private equity firms must adhere to the GIPS standards to maintain their reputation and credibility.

The GIPS standards provide a framework for private equity firms to present their performance in a transparent and consistent manner.

By adhering to the GIPS standards, private equity firms can demonstrate their commitment to transparency and accountability.

Private equity investors can use the GIPS standards to evaluate the performance of private equity funds and to make informed decisions.

The GIPS standards are widely used by the private equity industry and are essential for investors to make informed decisions.

Private equity firms must file a standardized disclosure, which includes various ratios and metrics.

The GIPS standards ensure that private equity firms present their performance in a clear and concise manner.

Private equity investors can rely on the GIPS standards to make informed decisions and to evaluate the performance of private equity funds.

Private equity firms must adhere to the GIPS standards to maintain their reputation and credibility.

The GIPS standards provide a framework for private equity firms to present their performance in a transparent and consistent manner.

By adhering to the GIPS standards, private equity firms can demonstrate their commitment to transparency and accountability.

Private equity investors can use the GIPS standards to evaluate the performance of private equity funds and to make informed decisions.

The GIPS standards are widely used by the private equity industry and are essential for investors to make informed decisions.

Private equity firms must file a standardized disclosure, which includes various ratios and metrics.

The GIPS standards ensure that private equity firms present their performance in a clear and concise manner.

Private equity investors can rely on the GIPS standards to make informed decisions and to evaluate the performance of private equity funds.

Private equity firms must adhere to the GIPS standards to maintain their reputation and credibility.

The GIPS standards provide a framework for private equity firms to present their performance in a transparent and consistent manner.

By adhering to the GIPS standards, private equity firms can demonstrate their commitment to transparency and accountability.

Private equity investors can use the GIPS standards to evaluate the performance of private equity funds and to make informed decisions.

The GIPS standards are widely used by the private equity industry

Investment banking is like being a real estate agent for businesses, helping them buy, sell, or raise capital and earning a commission when they do so. You can earn a lot of money in investment banking, but the ceiling is lower compared to private equity.

Private equity, on the other hand, is like being a real estate investor, buying large companies, improving them, and then selling them again in a few years to earn a profit. The ceiling for private equity is much higher, especially if the asset's price increases significantly.

Many people argue that private equity work is more interesting and intellectually engaging, with a better lifestyle and a superior long-term career. Undergraduates often start as investment banking analysts and then move into private equity or other fields after a few years.

Here's a comparison of investment banking and private equity:

The industries differ in most other ways, but one key similarity is that both can be lucrative careers, with private equity having a higher ceiling.