How To Compare Private Equity Firms

A private equity firm is a company that raises capital through private investors, as opposed to on an open exchange like the New York Stock Exchange or Nasdaq.  Private equity firms take the capital they raise and invest it following a variety of strategies.  Since they are not publicly traded, comparing private equity firms is more difficult than comparing publicly traded companies.  This article will give you ways of how to compare private equity firms.
The first way of how to compare private equity firms is to compare strategies.  Some private equity firms have a unique investment strategy, but most private equity firms will follow one of six basic investment strategies.  The most common investment strategies are listed as follows:

  • Venture Capital – Venture capitalists primarily invest in young companies looking for funds to help open, establish, or expand their business.
  • Growth Capital – Growth capitalists primarily invest in mature companies that are looking for funds to continue expansion or restructure their organization.
  • Leveraged Buyout – With a leverage buyout, the private equity firm attempts to buy a controlling share of a mature company.
  • Distressed or Special Assets – This strategy involves purchasing debt securities of financially troubled companies.
  • Mezzanine Capital – Mezzanine capitalists provide a loan to an organization which is senior to their capital, but junior to a traditional business loan.
  • Real Estate – Through Real Estate Investment Trusts, this strategy involves purchasing commercial real estate investments.

Another way to compare private equity firms is by examining their performance.  As an investor, this is the most important comparison because the private equity firm’s performance will be directly correlated to your personal return.  All reputable private equity firms will have historical operating information on hand, as well as a summary of their investment strategy.  To diversify your personal portfolio, it may be a good idea to invest in more than one private equity firm.
Another way of how to compare private equity firms is to look at minimal investment required.  A minimal investment for private equity firms ranges from a few hundred dollars up to hundreds of thousands of dollars.  Many private equity firms require larger investments because they want to concentrate on institutional investors, although many private equity firms will accept individual investors.


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