Council Post: Why Is Private Equity Gaining Popularity? (2024)

FAQs

Why is private equity gaining popularity? ›

Private equity firms can access large amounts of capital, which is attractive to business owners, especially as bank loans are becoming harder to access.

Private equity, now a major presence in the US economic landscape, has been booming since the 2008 financial crisis. Its roots lie in the rise of the corporation at the turn of the century and the shareholder revolution of the 1980s.

Here are some reasons why private equity is popular as a career: High Earning Potential: Private equity professionals often enjoy high earning potential. Compensation structures in the industry typically include a base salary and performance-based incentives, such as carried interest or profit-sharing.

There are a couple of reasons why a private equity firm would decide to go public: It awards general partners at the firm the opportunity to get liquidity on their ownership stake in the firm. Listing on stock exchanges provides private equity firms with greater liquidity, as anyone can invest in them.

In 2024, PE firms are increasingly targeting retail investors who are drawn to the resilience of the asset class, the diversification it offers, and its performance compared to public markets. It's particularly attractive to high-net-worth individuals and quasi-retail investors.

Private equity owners make money by buying companies they think have value and can be improved. They improve the company or break it up and sell its parts, which can generate even more profits.

Unlike a couple of decades ago, when PE investors typically bought similar companies (like waste-management companies or insurance companies) to create value from economies of scale, many have changed tack to develop better businesses through recombination of distinct pieces, to take advantage of synergies and ...

However, the industry that is today described as private equity was conceived by a number of corporate financiers, most notably Jerome Kohlberg Jr. and later his protégé, Henry Kravis.

That may not have been such a big deal when private equity was a niche industry. Today, however, it's anything but. In 2000, private-equity firms managed about 4 percent of total U.S. corporate equity. By 2021, that number was closer to 20 percent.

What makes private equity so interesting? ›

Private equity also gives you the ability to work closely with the company over an extended period of time. Private equity investors can conduct in-depth diligence on the company with private information. The company usually opens its books and let the investors evaluate all aspects of its operations.

As of Sep 6, 2024, the average annual pay for a Private Equity Vice President in New York City is $174,414 a year. Just in case you need a simple salary calculator, that works out to be approximately $83.85 an hour. This is the equivalent of $3,354/week or $14,534/month.

Critics have also taken aim at private equity's tax practices, accusing some firms of exploiting legal loopholes and engaging in aggressive tax planning to minimize their tax obligations.

Examples of solid answers to the “why private equity” question: You want to work with companies over the long-term instead of just on a single deal. You want to get exposed to the operations of companies and understand all aspects rather than just the financial ones (note: “exposed to,” not “control” or “improve”).

However, private equity also comes with notable drawbacks. These investments typically require a long-term commitment, often locking up capital for several years, and they tend to be less liquid than public equities.

PE sees its strongest quarter in two years.

Private equity (PE) activity saw its strongest quarter in two years in Q2 2024. Firms announced 122 deals valued at US$196b, nearly double the US$100b announced in Q1, making it the strongest period for capital deployment since the downturn began in the third quarter of 2022.

Private equity has grown rapidly over the past 10 years and the current slowdown in deal activity, albeit brief, offers firms an excellent opportunity to leverage new technology – highlighted by AI and GenAI – and to deploy other operational efficiencies that will drive value creation and transformation in their ...

Market growth has been driven by an increase in high-net-worth individuals (HNWIs), intergenerational wealth transfer, and companies staying or going private. Private capital has shown great resilience in a volatile environment and presents tremendous opportunities for investors and entrepreneurs globally.