Private Equity: How it Works
Private equity funds are set up as limited partnerships. These limited partnerships are controlled by private equity companies that are the general partner in the limited partnership. The private equity company encourages individuals and institutions to invest in the private equity fund. This way, the investors become limited partners, though the general partner controls the company management. When the general partner thinks that a particular investment is feasible, it asks the limited partner to invest the amount it guaranteed. The general partner chooses the investment portfolio of the partnership, while the limited partner provides funds for investing. The limited partner, or investor, in turn profits through sales, mergers, recapitalization or initial public offering.
Private equity funds are set up as limited partnerships. These limited partnerships are controlled by private equity companies that are the general partner in the limited partnership. The private equity company encourages individuals and institutions to invest in the private equity fund. This way, the investors become limited partners, though the general partner controls the company management. When the general partner thinks that a particular investment is feasible, it asks the limited partner to invest the amount it guaranteed. The general partner chooses the investment portfolio of the partnership, while the limited partner provides funds for investing. The limited partner, or investor, in turn profits through sales, mergers, recapitalization or initial public offering.
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