What do private equity investors actually do?

Most of us get confused when we hear the word, ‘private equity’. Even those who have been working in the corporate world and real estate market for quite a while find it difficult to understand that how do private equity in India actually works. 

To make it simpler, private equity investors basically have three major functions to do—raising money for the partners, sourcing and closing the deals, and improving the operations. Let’s understand the working dynamics of private equity investors in a bit more detail.   

Raising Money: Raising money is one of the most challenging jobs for any equity investor. Usually, they rely upon external institutes such as LPs (Limited partners) for raising money. Sometimes they also invest in real estate funds to get returns but they mostly rely upon the limited partners.

Sourcing and closing the deals: This part may not be as challenging as raising money but a very critical one. Acquisition requires the investors to do a good amount of research and study. There is a lot of documentation work to do and in some cases they have to work with the senior managers to rebuild the entire strategy for an organization.      

Improvement in operations: Acquisition of a company does not imply that you will be directly taking up the roles of CFO or CEO. A lot of reshuffling will take place on the senior management but a lot of things will remain unchanged. Here the investors will have to see where all they have to bring about the changes for better future returns.

Private equity market is not just complicated for a newbie but also for the industry experts. For business leaders making right investments is very important and here is where the private equity management comes into place. The above mentioned steps are the major building blocks of any private equity business.