In the following brief informational post, Douglas Battista, a California-based businessman and finance professional, answers a few common questions about private equity.
Q: What is private equity?
Douglas Battista: Private equity leverages the cash of high net-worth companies and individuals for investment purposes. Private equity partners invest their money and monies raised to acquire equity ownership in public and private companies. Most private equity partnerships require a minimum investment, usually greater than $250,000.
Q: Can anyone invest in these firms?
Douglas Battista: Theoretically, yes. However, since a large amount of liquid cash is required, most private investors are wealthy businessmen and corporations looking to expand their portfolios. These entities typically have numerous cash flow outlets and may invest in dozens of projects. Some of the most well-known and largest private equity firms are JPMorgan Chase and Goldman Sachs. These firms usually deal in middle market deals, which range from $10 million to $500 million.
Q: How much does it pay to work in the private equities industry?
Douglas Battista: The investors earn money through an agreed-upon fee structure. This may be a certain percentage of profits over the course of three to five years or more; many investors earn millions of dollars in realized and unrealized compensation every year. Investors may also generate funds by collecting asset management fees. Private equity firms also employ managers and associates who may earn anywhere from the low $100,000s plus bonuses to greater than $1 million per year in compensation.
Q: How do businesses seeking capital benefit from the services of a private equity provider?
Douglas Battista: Obviously, having access to immediate cash allows a business owner to operate the business without worry of failing in the short term. In addition, a business owner may benefit from the experience of active investors, those who provide support and help manage and build a better company for the benefit of all.