Entity Types

Private Equity Fund


Private Equity Funds invest in Private Companies

Also see Private Equity Asset Class

PE Funds usually invest in companies by undergoing Leveraged Buyout transcations

PE FUND Deal Valuations
  • Historically have bough compnies for 3 - 4x EBITDA
  • Since the 2010s have been buying camanies for 5 - 6 time EBITDA

Notable PE Fund Events
  • PE deals and funds were popularized in the 1980s
  • Assets under management have grown significantly from 2005 to 2017 (only dropping slightly in 2008)
  • PE funds have outperformed the S&P 500 index throughout the 1990s and 2000s (thus generating high demand)
  • In the 2010's, private equity funds have become popular with pensions and endowments given their recent outperformance of public markets.  This has led to a large increase in asset flows.  
  • In the 2010's PE funds have generally underperformed the S&P 500 Index.
    • This coincides with a general increase in multiples paid for buying companies
    • This coincides with a general increase in leverage

Criticisms of Private Equity Funds
  • PE forms can lift all public equity prices by overpaying for companies they take private
    • Even if you don't invest in PE firms, their aggregate actions can have impact on other investments you have
  • PE firms have raised so much money over the last decade  and have to put it to work.  As such, they might have to do deals that aren't super great not great for investors (circa 2018)
  • As PE have been successful and raise more funds, they have had to take on bigger and more risky deals to put their cash to work

PE Fund Cautions (circa 2018)
  • If interest rates continue to rise and valuation multiples fall, it will be difficult for PE funds to generate the high returns they have in the past
  • Historically they have been considered 'safer' than public equities because valuations are less volatile.
    • However, this may be due to the fact that the companies are private and harder to value and not valued as often
    • Some consider PE more risky than public equities because leverage is employed