what are private equity firms

Private equity firms are investment management companies that provide financial backing and make investments in the private equity of startup or operating companies through a variety of investment strategies. These firms acquire a controlling or substantial minority position in a company and then look to maximize the value of that investment. Private equity firms characteristically make longer-hold investments in target industry sectors or specific investment areas where they have expertise. Private equity firms buy companies and overhaul them to earn a profit when the business is sold again. They manage their portfolio companies to increase their worth or to extract value before exiting the investment years later. Private equity firms invest the money they collect on behalf of the fund’s investors, usually by taking controlling stakes in companies. The private equity firm then works with company executives to make the businesses more valuable so they can sell them later at a profit. Private equity firms are different from hedge funds firms that usually make investments that are shorter-term, including securities and other liquid assets in a particular industry but with little control over the company’s operations. Private equity firms usually raise capital for investments into a fund, usually in the form of a limited partnership, which is a kind of fund that gives control. Private equity firms are groups of individuals who come together to pursue private equity investments. Investors in this asset class are usually required to commit significant capital for years, which is why access to such investments is limited to institutions and individuals with high net worth.