Private equity is an alternative investment class and generally consists of capital not listed on a public exchange. Private equity is composed of funds and investors that directly invest in private companies, or that engage in buyouts of public companies, resulting in the delisting of public equity. Institutional and retail investors provide the capital for private equity, and the capital can be utilized to fund new technology, make acquisitions, expand working capital, and bolster and solidify a balance sheet.
A private equity fund has Limited Partners (LP), who typically have limited liability, and General Partners (GP), who have full liability. The latter is also responsible for executing and operating the investments.
Generally speaking, most Private Equity firms invest resources into organizations that have previously acquired footing in their particular business and market sectors, yet need extra cash flow to arrive at a higher level. Since the firm investor doesn’t normally hold a majority stake, the investor holds less influence over the vital and functional bearing of the portfolio company. Therefore, the three components are basic for the financial backer to assist with guaranteeing positive speculation results which are increased focus on partnership, alignment of interest and value-added opportunities and expertise.