While Private Equity (“PE”) refers to investing in privately owned companies of all stages (including early stage private companies otherwise known as “venture capital”) most in finance refer to “private equity” as investments into, and/or buyouts of mature private companies. Traditionally, “private equity” denotes funds who pursue a “levered buy out” of companies, i.e. purchasing the total enterprise value of companies using mostly debt and then servicing the debt using cash flow generated from the acquired company
PE firms, especially megafunds (funds with >$5bn or more), can also invest in the public market. However, instead of trading large volumes as would a hedge fund investor, large, well capitalized PE funds have the ability to take a public company private. In industry, this is called a “take private” and typically, the PE fund wants to be the majority shareholder (over 50% stake in the company)
Private equity professionals generally have a background in corporate finance / investment banking
- Of professions on the buy-side (i.e. hedge funds, private equity, alternative asset managers), private equity recruiting is the most linear if you have a background in investment banking
- Some PE shops have also started analyst programs to attract top talent directly from college undergrad, but those positions are few and far in between