The business of Private Equity
Summary
Maurice Tchenio: Private Equity is a recent business that I've been lucky enough to know since its beginnings in the 1980s. It involves mainly institutional investors - pension funds, insurance companies, banks and a few wealthy individuals - who wish to invest in unlisted companies, delegating the management of these investments to ultra-specialized management companies known as Private Equity firms. This business, which originated in the United States, has undergone spectacular growth over the past 40 years, both geographically - it is now present in virtually every country in the world, with some 4,000 management companies managing over $5,000 billion in capital - and in terms of the type of companies it targets.
A distinction is made between venture capital funds investing in start-ups, growth capital companies investing in growing companies, and companies investing in leveraged buy-outs (LBOs) of companies of increasing size (up to several tens of billions of dollars) ( buyout ) and turnaround buy-outs. Private Equity is now recognized as the best-performing asset class over the long term, compared with traditional investments in bonds, listed companies or real estate, and the average historical returns for Private Equity, mainly buyout and Growth, are between 10% and 15% per annum. The world's best funds return over 20% a year.
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