What Is a Private Equity Firm?

A private equity company is an investment company that invests in helping companies grow by purchasing stakes. This is different than individual investors who buy stock in publicly traded firms which pay dividends, but does not grant them direct control over the company’s operations or decisions. Private equity firms invest in groups of companies referred to as portfolios and seek to take control of these businesses.

They will often find a business that has room for improvement and purchase it, making adjustments to increase efficiency, reduce costs and help the business grow. In some cases, private equity firms use the use of debt to purchase and take over a business, known as leveraged buyout. They then sell the company at profit and receive management fees from the companies within their portfolio.

This cycle of selling, buying, and re-building can be a long process for smaller businesses. Many are looking for alternative financing methods that permit them to access working capital without the added burden of a PE company’s management fees.

Private equity firms have been able to fight against stereotypes that paint them as corporate strippers assets, and have emphasized their management skills and demonstrating examples of transformations that have been successful for their 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 is detrimental to workers.

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Faruq Aziz 25

Faruq Aziz 25

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