How To Learn About Private Equity

by Carter Toni

So, you want to learn about private equity, do you? Well, you’ve come to the right place. The world of private equity can seem mysterious and elite, but we’re here to lift the veil and give you an inside look at how it really works. Private equity firms invest in companies that are not publicly traded, with the goal of improving operations and eventually selling at a profit. It’s a high-stakes game that can generate huge returns when done right.

In this article, we’ll walk you through the basics of how private equity firms operate, the kinds of companies they target, how deals get done, and what it’s like to work in the industry. You’ll learn the lingo, understand the key concepts, and gain insights into some of the most well-known PE firms and professionals. By the end, you’ll have a solid grasp of this influential sector of the financial world and be well on your way to becoming a private equity pro. So grab a coffee, settle in, and let’s get started! The world of private equity awaits.

Read About the Private Equity Industry

To really understand private equity, you need to immerse yourself in learning about the industry. Here are some of the best ways to get up to speed:

  • Read books on the topic. Some highly-rated introductions include “Private Equity: Transforming Public Stock to Create Value” by Harold Bierman, and “Mastering Private Equity” by Claudia Zeisberger. These will give you an overview of how private equity firms work and the role they play in the economy. If you’re interested in exploring more excellent resources on private equity, check out our curated five of the best private equity books.
  • Follow industry publications like Private Equity International, Buyouts and Venture Capital Journal. Read articles to learn the language of private equity and stay on top of trends. Many publications also have useful introductory guides on their websites.
  • Explore case studies of major deals. Seeing private equity in action is one of the best ways to understand what it really does. Look for examples of leveraged buyouts, growth equity deals, and venture capital investments. Analyze why private equity got involved, how they financed and structured the deal, key challenges, and outcomes.
  • Check out educational content from private equity firms and organizations. Many offer primers, online courses, video tutorials and podcasts geared toward people interested in the field. The Private Equity Growth Capital Council’s “Private Equity Basics” and the Chartered Alternative Investment Analyst Association’s “Introduction to Private Equity” are two top free resources.

Learning the fundamentals of private equity will pay off. While it can seem complicated, gaining knowledge of how private equity works, its role in the economy and impact on businesses will give you insight into this influential industry. With curiosity and persistence, you’ll be conversing like an insider in no time!

Study How Private Equity Firms Operate

To really understand private equity, you need to study how private equity firms operate. These firms raise money from large institutional investors like pension funds and endowments to buy and sell private companies.

First, private equity firms source deals and find companies to buy. They evaluate hundreds of companies to find a few good targets. They look for companies with strong management, growth potential, and those undervalued by the public markets.

Once a target is found, the PE firm conducts rigorous due diligence. They pore over the company’s financials, operations, management, and risks to determine a fair price. If they like what they see, they make an offer to acquire the company.

After acquiring the company, the PE firm gets to work improving operations and cutting costs. They provide oversight and expertise to help the company maximize growth and efficiency. The goal is to boost the company’s value and sell at a profit in 3-7 years.

To sell, the PE firm markets the company to potential buyers like other PE firms, industry rivals, or public investors. If they get a good offer, they sell and return money to their investors. If not, they continue improving the company until the right offer comes along.

Learning about this cycle of sourcing, acquiring, improving, and selling companies is key to understanding private equity. PE firms aim to generate high returns for investors by buying undervalued or underperforming companies and selling them at a premium after making operational improvements. With hard work and the right expertise, private equity can build very successful companies.

Learn Private Equity Investment Strategies

To learn about private equity investment strategies, start by understanding the basics. Private equity firms invest in private companies, or companies that are not publicly traded. They aim to generate high returns for investors.

Common Strategies

The most well-known strategies are leveraged buyouts (LBOs) and venture capital (VC). In an LBO, a firm acquires a mature company using a lot of debt. They then restructure it to increase profits and eventually sell it, ideally at a gain. VC firms invest in emerging companies with growth potential. They hope to cash out at a profit if the company succeeds.

Other Approaches

Some firms focus on distressed companies, turnarounds, real estate, or secondary investments where they buy stakes from other firms. Certain firms target specific sectors like energy, healthcare or finance. The strategies vary but the end goal is the same: buy, improve, sell at a profit.

Hands-On Management

Private equity firms are very hands-on. They usually get board seats and work closely with management to make operational changes to boost profits like reducing costs, expanding into new markets or repositioning brands. The firms put pressure on companies to perform well so they can exit at the best price. Critics argue this short-term focus reduces long term investments, but supporters counter that PE creates shareholder value.

Risks and Rewards

While returns can be high, private equity is risky. Investments are illiquid, often for 7-10 years, and there is no guarantee of success. Many investments do not end up generating a profit. However, for investors like pension funds with long time horizons, PE provides an opportunity for outsized gains to meet their obligations. For individuals, PE funds allow access to an asset class that would otherwise be inaccessible.

Learning about private equity strategies and approaches will help you determine if it meets your investment needs and risk tolerance. With high risk comes the potential for high reward, but also the possibility of loss. Going in with realistic expectations about the level of involvement, timelines and possible outcomes will serve you well.

Understand How Deals Are Structured

To really understand private equity, you need to know how deals are structured. Private equity firms use a combination of debt and equity to finance acquisitions, which is known as a leveraged buyout (LBO).

Debt Financing

The majority of the capital in an LBO comes from debt, usually 70-80% of the total deal value. The private equity firm will get commitments from banks and other lenders to provide loans to finance the acquisition. The company that is acquired then becomes responsible for repaying this debt.

Equity Financing

The private equity firm contributes equity for 20-30% of the deal. They invest their own money from funds they manage, plus money from institutional investors like pension funds. The equity allows them to gain control of the company.

Deal Structures

There are two main types of LBO deal structures: dividend recaps and sponsor-to-sponsor deals.

  • Dividend recaps involve borrowing more money to pay dividends to equity investors. This allows them to withdraw some of their initial investment.
  • Sponsor-to-sponsor deals happen when one private equity firm sells a company to another private equity firm. This allows the first firm to exit their investment and make a profit.

To earn a good return, private equity firms aim to improve the company’s operations and cash flow to increase its value. They typically exit their investment within 3 to 7 years through an IPO, sale to another company, or sale to another private equity firm.

Understanding how LBOs and private equity deals work is key to learning about this asset class. The heavy use of debt and quest for high returns drive many of the strategies used by private equity firms. With the right knowledge, you’ll gain insight into how fortunes can be made and lost in private equity.

Follow the Latest Private Equity News and Trends

To stay on top of trends in private equity, follow industry news sources and keep up with the latest deals and funds.

Track Private Equity News Outlets

Read publications like Private Equity News, Bloomberg, Fortune, Forbes, and The Wall Street Journal. These outlets regularly report on new private equity funds launching, major acquisitions and buyouts, IPOs of private equity-backed companies, and more. Scan the headlines and read articles on deals in industries you’re interested in to build your knowledge.

  • Private Equity News – Global coverage of private equity deals, fundraising, and exits. Updated daily.
  • Bloomberg – Wide-ranging business and financial news. Follow their private equity coverage.
  • Fortune – Leading source for business and finance news. Frequently reports on major PE deals and funds.
  • Forbes – Features news and in-depth profiles of top PE firms, partners, and portfolio companies.
  • The Wall Street Journal – Iconic publication reporting on global business, economics, and finance. Extensive PE deal coverage.

Follow Key Firms and Figures

Private equity is an industry powered by key individuals and firms. Track major firms like The Blackstone Group, KKR, Apollo Global Management, and The Carlyle Group. Also follow influential figures like Stephen Schwarzman, Henry Kravis, Leon Black, and David Rubenstein. Seeing the deals they’re involved with and the companies they’re acquiring or taking public provides insight into current trends.

Analyze Recent Deals and Funds

As you read about new private equity deals, funds, and exits, analyze the details. Consider the industries and geographies involved, the size of the deals, the multiples paid, the investors in new funds, and the returns generated. Look for patterns to determine sectors, regions, or strategies that are particularly active or successful. The more you understand current private equity activity, the better positioned you’ll be to pursue opportunities in the field.

Staying on top of private equity news, key players, deals, funds, and trends is key to learning about this influential industry. While private equity moves fast, keeping a close eye on developments will help ensure you have a solid grasp of where the industry is headed.


So now you’ve got the basics down about how private equity works. The key is just diving in and exploring all the resources out there. Read books by experts in the field, follow leading investors and firms on social media, listen to podcasts during your commute. The more you immerse yourself, the more you’ll pick up on the nuances and complexities. Before you know it, terms like LP, GP, carry, and exit strategy will roll off your tongue. You’ll be chatting with friends about the mega deals making headlines and have an opinion on the next emerging sector poised for growth. The private equity world is fascinating, fast-paced, and always evolving. Keep learning and stay up to date – you never know, you might just become an expert investor yourself someday. The knowledge is out there, you just have to go get it. Now get to work!

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