What Do Private Equity Firms Say They Do?
72 Pages Posted: 11 Jun 2014 Last revised: 10 May 2017
Date Written: June 1, 2016
We survey 79 private equity (PE) investors with combined assets under management of more than $750 billion about their practices in firm valuation, capital structure, governance, and value creation. Investors rely primarily on internal rates of return and multiples to evaluate investments. Their limited partners focus more on absolute performance as opposed to risk-adjusted returns. Capital structure choice is based equally on optimal trade-off and market timing considerations. PE investors anticipate adding value to portfolio companies, with a greater focus on increasing growth than on reducing costs. We also explore how the actions that PE managers say they take group into specific firm strategies and how those strategies are related to firm founder characteristics.
Keywords: private equity, valuation, capital structure, value creation
JEL Classification: G11, G24, G30, G31, G32, G34
Suggested Citation: Suggested Citation