PRIVATE EQUITY
How does private equity work?
Private equity funds typically progress through three main phases — Formation, Investing, and Harvesting. Each stage represents a distinct part of the journey: from setting up the fund and securing commitments, to deploying capital, managing investments, and ultimately returning value to investors.
The three phases
01 Formation
The investment manager structures the fund, articulates its mandate, and secures investor commitments.
02 Investing
Committed capital is drawn down and allocated to portfolio companies aligned with the fund’s strategy.
03 Harvesting
Exits are executed and capital distributions returned to investors, reflecting realised value creation.
Formation
Phase 1
Fund life cycle
Formation
Investing
Harvesting
During the formation phase, the investment manager sets up the fund structure, defines its strategy, and begins engaging potential investors.
Marketing
Here’s an overview of our upcoming investments.
Private Equity Fund Manager
The investment manager promotes their upcoming fund to potential investors, outlining their investment strategy, risk and target return.
Capital Commitments
The investors who are interested make capital commitments in line with their investment strategy and mandate.
Fund Close
The fund closes once the sponsor has all the capital they need to proceed.
Investing
Phase 2
Fund life cycle
Formation
Investing
Harvesting
Following fund formation, the investment manager deploys capital into qualified opportunities that align with the fund’s mandate. As part of investing, the fund manager runs a due diligence process to assess the potential of a target company.
Screening
The investment manager evaluates potential investments.
Selection
Once the manager has found an investment prospect, the due diligence process begins.
Capital call
We have identified a compelling investment opportunity.
Private Equity Fund Manager
If the selected company passes due diligence, the investment firm makes an offer, also known as a term sheet. If the company accepts the term, the investment process proceeds. To finance this investment, the investment manager needs funds.
Capital distribution
Capital distributions are allocated pro rata, based on each investor’s relative share of the fund’s total commitments.
Deployment
The fund allocates capital to the target company in exchange for either a minority, majority or controlling stake, depending on the fund’s investment strategy.
Assets under management
The fund allocates capital to the target company in exchange for either a minority, majority or controlling stake, depending on the fund’s investment strategy.
Holding period
During this period, the investment manager grows the company’s value through active management and financial engineering.
Harvesting
Phase 3
Fund life cycle
Formation
Investing
Harvesting
As portfolio companies mature, the investment manager seeks exit opportunities—typically through an IPO, trade sale, or sponsor-to-sponsor transaction.
Exit
After 5 to 7 years, the investment manager lists the company on an exchange or sells it to another fund or a trade buyer. We call this exiting the position.
The end of an era
The investee company returns capital to the fund.
Capital distributions
Great news! We’ve exited the investment.
Private Equity Fund Manager
Upon exiting the investment, the capital is distributed back to the investors.
Distributions are made proportionally to each investor’s commitment, reflecting their share of the fund’s ownership.
