The basics
Private equity funds have become a major force in the global economy, and the growth of the sector is expected to continue in the future. As they require similar skill-sets, private equity firms are competing with investment banks to attract graduates into the sector.
Like investment banks, private equity firms raise money for companies that need an infusion of capital, in order to provide their own investors with a profit. Unlike investment banks, they raise the initial capital from individual wealthy investors and private funds. It is a useful way of raising capital for companies that are not traded on a stock exchange.
Private Equity firms normally invest in less mature companies in expanding sectors - known in Britain as Venture Capitalism - or else will buy-out a more mature company, becoming the owners or co-owners of the business. In an ideal situation they will restructure the acquired company - turning around an unprofitable business - and later sell it for a profit; or alternatively break it up and sell its assets separately - a process known as 'asset stripping'.
The private equity industry has grown steadily over the past two decades with the equity invested in UK businesses growing by 22% per annum since the early 1980s to reach almost £12 billion in 2005. Over the past six years, private equity funds have raised nearly £70 billion of capital for investment into unquoted businesses, £27 billion of this in 2005 alone.
In recent years the largest private equity firms - such as the Carlyle Group, which employs world-famous statesmen - have attracted much media attention for multi-billion dollar "mega buy-outs". However, there are also numerous mid-tier firms that acquire and invest in smaller companies.
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