Get the Facts on Private Equity
Private Equity Fast Facts
- There are 2,300 private equity firms in the U.S. In 2010, private equity firms invested more than $148 billion in 1,234 U.S. based companies in 2010.
- There are 14,200 companies in the United States that are backed by private equity investment.
- Private equity-backed companies employ approximately 8.1 million people worldwide.
Private Equity: An Overview
What is Private Equity? Private equity is a vital source of capital for companies operating in the U.S. and around the world. Our investment model is simple: We buy companies that have significant potential for growth. We apply a long-term approach to improving their performance and increasing their value. Eventually, we sell the improved companies, hopefully at a profit, and undertake a new investment.
How Does Private Equity Work? Private equity firms seek out growing companies that need capital to expand, or underperforming, undervalued or distressed companies that can be turned around. We work with these companies’ managers to unlock significant value —by changing the business strategy, injecting new managerial expertise, or improving sales and marketing, production, distribution or sourcing. Ultimately, private equity firms succeed when their investments are able to achieve long-term success.
Who Benefits? The returns generated by private equity investment are a steady source of income for investors such as public and private pension funds, university endowments and charitable foundations. Public and private pension funds make up 42 percent of all private equity investment. Private equity also provides enormous benefits to the company, its employees and investors, and the U.S. economy.
The Benefits of Private Equity
Private equity drives growth. The mission of a private equity firm is to strengthen the businesses in which they invest. A study by Ernst & Young found that the average value of businesses in the U.S. acquired by PE firms grew 83 percent over the course of private equity ownership.
Private equity creates value. Private equity creates more valuable companies, which in turn deliver real value to investors. According to the most recent research, through 2009 private equity funds worldwide have distributed more than $1.6 trillion to limited partner investors. A review of 152 public pension funds in the U.S., Canada, and Europe found that as of June 2010, private equity outperformed all other asset classes (fixed income, listed equity, real estate and hedge funds) for one- and five- year periods.
Private equity makes companies stronger and more competitive. An analysis conducted by preeminent academics Josh Lerner of the Harvard Business School and Jerry Cao of Boston University examined 496 acquisitions between 1980 and 2002 and found that companies that went public again after being acquired by private equity firms and operated by them for more than a year consistently outperformed the market and other IPOs.
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