How does private equity investing work?

In private equity investing, private equity firms raise capital from investors, such as institutional investors, high net worth individuals, and family offices, to create a fund. This fund is then used to invest in private companies, which are not listed on public stock exchanges.

Private equity firms typically buy a significant stake in these companies and work to improve their operations and increase their value. They may take an active role in managing the companies, providing strategic guidance, and bringing in new management teams to improve performance.

After a period of time, usually between three to seven years, the private equity firm seeks to exit its investment and realize a return for its investors. This exit can take the form of a sale to another company, an initial public offering (IPO), or a merger. The profits from the sale are distributed to the investors, with the private equity firm typically taking a percentage as a fee.