Private Equity Firms Are Vital Components in Today’s Global Economy

Gone are the days of true corporate raider, where companies were torn apart and sold off to the highest bidder. The misconception in today’s market place by investors, not institutional investors mind you but individual investors, is that when a Private Equity Firm takes over a public company that the corporate raider mentality comes into play. This is far from the truth actually.

Private Equity firms, as it relates to public companies, add true value through restructuring. Keep in mind that when a public company does anything dramatic that could temporarily reduce a company’s earnings or asset base, the street is unforgiving. Its this fear that actually puts a blockade in place and prevents most public companies from doing what a private equity firm is already geared up to do, and that is reduce the fat, build a strong sound foundation and add true growth to the company.

From putting in key management, lining up strategic acquisitions and building on the company’s core business, Private Equity is sometimes a public company’s best friend.

Take for example Sears Holdings (NASDAQ: SHLD), the company was trading on the NYSE and floundering, today the company trades on the Nasdaq, hit a 52-week high of $195.18, acquired K-Mart in the process and solidified their position in the retail industry once again. This was all made possible by a move from Mr. Eddie Lampert, yes Private Equity was the key in the current success of Sears.

My point is in today’s marketplace there are many private equity firms or funds, both large and small, that are active, some are publicly traded such as The Blackstone Group (NYSE: BX) and KKR Financial (NYSE: KFN), some are extensions of brokerage firms such as Goldman Sachs (NYSE: GS), Bear Stearns (NYSE: BSC), Credit Suisse and even banks such as Citigroup (NYSE:C), while others such as Venrock (, founded by Laurance Rockefeller, General Atlantic (, United Max International (, and Matrix Partners (, are privately held, but they all have one thing in common. They all bring experience, value and positive change to the companies that they either acquire or make an investment in.

Make no mistake they are not passive investors, they are all looking to turn a profit for their investors and that only comes through their contacts, experience, chosen management team, portfolio companies and eventual exit strategy.

Basically Private Equity is good in today’s marketplace and they are in their element as they pick up the pieces of fractured companies that investors have begun to abandon.

Now the next logical question that an investor may have while reading this article is how do we as an individual investor participate in this trend. Well the first point is that any investor in a hedge fund or private equity fund has to meet certain criteria before they are allowed to participate, they are known as accredited investors.

An accredited investor can actually seek out some of the major funds that I’ve mentioned already or they may be approached through their current stockbroker, but for those that may not be looking to invest $250,000 to 1,000,000 into a private equity situation, then their next step is to look at smaller specialty funds that may offer units in the price range of $25,000 – $50,000 per unit, which may be more reasonable to an individual investor.

Of course the fund manager and his team are very important things to take into consideration when making a selection. The ones that were mentioned today are not a bad place to start as some private equity firms may be in the midst of creating another fund within the family.

So Private Equity, although most times misunderstood, is a vital part of today’s marketplace because without private equity firms making investments in failing public and private companies, investing in new technology and bringing investors along for the ride, global markets would not be as strong as they have been. Without a doubt companies such as Sears, K-Mart, Burger King and countless others would be chapters in a business history book as opposed to being thriving entities, employing thousands and feeding the U.S. economy.


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