Private equity firms are investment management companies that acquire capital from wealthy investors to invest in existing or new companies. They purchase stakes in private companies or acquire control of public companies with plans to take them private and delist them from stock exchanges. Private equity funds are pooled investments that are generally not open to small investors. Once private equity firms acquire a company, they encourage executives to make the company operate more efficiently before selling or "exiting" several years later, either through a sale to another investor or through an initial public offering. Private equity firms have a range of investment preferences, and some are strict financiers or passive investors wholly dependent on management to grow the company and generate returns, while others provide operational support to management to help build and grow a better company. 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 companys operations. The following are some of the main functions in which private equity investors are involved in their quest to earn money:
- Raise capital from limited partners or from their own money to contribute to the fund.
- Perform due diligence to identify potential targets.
- Acquire companies or stakes in companies.
- Improve the companys operations to increase its value.
- Exit the investment through a sale to another investor or through an initial public offering.
