In general, private equities are private investment funds that are interested in buying private companies that are not listed on the Stock Exchange. In fact, private equities are entirely focused on making equity investments.
Private equity funds do not buy all types of equities. Instead, they specialize and focus on specific types of companies depending on their life cycles.
For example, a middle market private equity firm might buy equities from relatively young firms with expected high growth. However, private equities might focus on acquiring equities from well-known and established companies that have stable cash flows.
Eventually, private equities might even be interested in acquiring distressed companies and invest in them and change management with the purpose of reselling them.
There are a couple of ways that private equity firms can be structured – a limited partnership or a closed-end fund. The limited partnership is used mainly in the United States and has two types of partners – general partners and limited partners. While the closed-end fund is mainly used in Europe and has investors to provide capital to the entity and an asset management company. Eventually, the main role of private equity firms is to generate profit for their investors.