A private equity fund is managed by a private equity firm, often called a private equity sponsor or financial sponsor. The fund is the investment or capital used to buy a controlling interest in a private company, while the sponsor is responsible for operating the fund.
The firm or financial sponsor is typically the general partner (GP) of the fund. The GP manages the investment and may invest a small percentage (1-3%) into the fund. The investors in a private equity fund (i.e., those that put up 99% of the capital) are typically limited partners (LPs). While these investors/limited partners may be institutions, such as pension funds and banks, they can also include high-net-worth individuals who meet the definition of “accredited investor”.
A private equity sponsor may manage two or more private equity funds at the same time, and the investors of each fund may or may not overlap.
Who are today’s top private equity firms? Preqin ranks the following firms based on capital raised in the last 10 years.
Private equity funds are investments in privately held companies, and these funds can target specific industries or geographical areas. PE funds use both equity and debt, meaning they combine raised capital from LPs with borrowed money from banks.
There are different types of PE funds, including:
A private equity sponsor will manage a private equity fund for less than 10 years, ultimately exiting the company and selling it at, hopefully, a higher value.
[Editor’s Note: For more information on this and related topics, you may wish to attend the following webinar: Options for the Accredited Investor.]
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