Private equity firms are often idolized in the world of finance, with many graduates and professionals interested in pursuing a career in this field. Yet, only a selected group of people are successful in breaking into private equity, rendering it an enigmatic and insular industry that only a few really understand.
The purpose of this post is to present the top 100 private equity firms, ranked by the capital they raised in 2023, which is based on a list originally created by PDI. Note that this list might differ from a list of firms by assets under management (AUM).
Private equity (PE) is a distinctive investment class wherein funds, family offices, individual investor or other entities inject capital directly into private companies.
At its core, private equity aims to inject equity into a business, improve the operations and grow the business over time to ultimately exit the company at a higher price in order to achieve profit.
While doing this, investors focus mostly on two metrics: Internal Rate or Return (IRR) and Multiple of Invested Capital (MOIC).
We can delve into each component another time, but essentially the IRR is the compounded rate of return achieved, while the MOIC is the total realized profit originated from the deal compared to the initial capital invested.
Private equity firms use diverse investment strategies and focal points, each tailored to distinct objectives within the investment landscape. The primary models include:
Specialized in early-stage and high-growth enterprises, venture capital firms acquire startups and up and coming ventures, predominantly in technology, healthcare, and other innovative sectors. They typically invest in exchange for equity ownership and provide not only capital but also strategic guidance to both the company and founders as well as networking opportunities to help the startups grow rapidly.
These entities focus on acquiring mature companies, reshuffling their operations to increase performance, and then aim to exit in a pre-defined timeframe. Leveraging on significant debt financing, they secure controlling interests in established enterprises with very little equity (LBOs, for instance, can have 90% debt and 10% equity). This category often involves more substantial investments and higher risk due to the leverage involved. Buyout firms may focus on various industries, including manufacturing, consumer goods, and services.
Growth equity firms provide fund companies with high potential to scale, and usually take a minority stake unlike the buyout firms that tend to buy the majority or 100% of the target company. They typically invest in companies that have proven business models and are looking to accelerate their growth trajectory. Growth capital can be used for various purposes such as expansion into new markets, launching new products, or acquiring complementary businesses.
Private credit funds provide financing to companies or projects through loans, bonds, or other debt instruments. Unlike traditional bank loans, private credit funds often offer more flexible terms and may target companies that are unable to access financing through traditional channels. These funds also specialize in acquisition of loan portfolios, whether those are performing, sub-performing or non-performing loans. They may focus on different segments such as mezzanine financing, distressed debt, or direct lending.
Real estate private equity involves investing in properties or real estate-related assets with the goal of generating attractive risk-adjusted returns. These investments may include commercial properties, residential developments, hospitality assets, or infrastructure projects.
Real estate private equity firms often use a combination of equity and debt financing to acquire properties and enhance their value through strategic management, renovations, or development projects. The returns from real estate private equity investments can come from rental income, capital appreciation, or property sales.
Operating within a unique framework, private equity firms demonstrate a multifaceted business model, distinguished by meticulous stages of investment and proactive engagement. Key facets include:
Soliciting capital from diverse sources, ranging from institutional investors to high-net-worth individuals, private equity firms aggregate funds to fuel their investment endeavors.
Actively scouting for investment prospects, firms conduct exhaustive market research, network with industry stakeholders, and collaborate with financial intermediaries to identify lucrative opportunities.
Prior to investment, rigorous due diligence is conducted to scrutinize target companies comprehensively, evaluating financial viability, operational efficacy, and growth potential.
Informed by due diligence findings, firms deliberate on investment propositions, weighing factors such as growth prospects, anticipated Return on Investment (ROI), and alignment with overarching investment strategies.
Upon investment, firms engage in hands-on management, collaborating with portfolio companies to execute strategic initiatives, optimize operations, and enhance performance.
With a predefined exit strategy, firms strategize divestment avenues, whether through Initial Public Offerings (IPOs), mergers, acquisitions, or secondary sales, thereby realizing returns on investments.
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