What Is a Private Equity Firm?

What Is a Private Equity Firm?
2024-06-04 愛麗絲羊毛氈


A private equity company is an investment company that raises money from investors to buy stakes in companies and assist them grow. This is different from individual investors who purchase shares in publicly traded firms and receive dividends, but does not grant them direct influence over the company’s operations or decisions. Private equity firms invest in a group of companies, also known as a portfolio. They typically seek to take over the management of those businesses.

They usually purchase a company that has potential for improvement. They then implement changes to improve efficiency, reduce expenses, and expand the company. In certain cases private equity firms employ loans to purchase and take over a company, known as leveraged buyout. They then sell the company for an profit and collect management fees from the companies that are part of their portfolio.

This cycle of buying, selling and re-building can be a long process for smaller businesses. Many companies are searching for alternative ways to fund their business that give them access to working capital without the management fees of an PE firm.

Private equity firms have fought against stereotypes that portray them as strippers, by highlighting their management expertise and successful transformations of portfolio companies. But critics, like U.S. Senator Elizabeth Warren, argue that private equity’s focus on making rapid profits damages the long-term value and causes harm to workers.