Introduction to Private Equity: Venture, Growth, LBO and Turn-Around Capital, 2nd Edition

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Private Equity

A Business System Perspective

We are all investors in private equity (see section 3.1), even though not necessarily directly and consciously. Financial institutions collect money from each individual through various channels such as, for example, insurance premiums or pension savings (Davidoff, 2012b). They redistribute this capital inflow in the financial system, and notably to non-listed companies.

Non-institutional investors are high net worth individuals (HNWI). These individuals, because of their personal wealth, are considered as informed and aware of the risks borne by the selection of private equity funds. They can delegate the management of their assets partially or in total to private banks or family offices. These groups select funds for them. For the purpose of this book, we will focus on institutional investors (i.e., insurance groups, pension funds and banks) that we will call ‘limited partners’, and fund managers that we will call ‘general partners’.

The expectations of private equity investors with regard to the risk and return of their commitments vary according to their industry of origin; the source of the money they invest; and their economic and regulatory constraints. For that reason, financial institutions are themselves not necessarily investing directly in private equity. They have delegated the management of their non-listed investments to private equity professionals (agents), on their account (principals). Evaluating the performance ...