What is private equity investing?


Private equity investing is the buying and selling of unlisted, private companies’ equity shares, typically with capital pooled by private equity funds from institutional and accredited investors, often combined with debt.

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The private equity process

After buying companies, many private equity managers (GPs) aim to increase and create value by growing revenue, cutting expenses, expanding multiples, and other strategies. This process can be done organically or via add-on acquisitions to build platform businesses. The goal is to generate investment returns by growing revenue and boosting operating efficiency to make the company more valuable. Private equity investing has seen significant growth, with U.S. deal value doubling over the past decade (opens in new window). The progress has been fueled partially by record levels of capital as investors hunt for desired returns and seek to hedge or optimize their portfolios.

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A multi-year lockup

Private equity investments have long time horizons. It typically takes five years or more for PE funds to make desired changes to a portfolio company and sell it, which is when investors realize profits (or losses).

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A maturing asset class

Private equity investing has seen significant growth, with U.S. deal value doubling over the past decade. The progress has been fueled in part by record levels of capital as investors hunt for desired returns and seek to hedge or optimize their portfolios.

Private equity market participants

Investors make contractual commitments of capital as Limited Partners (LPs) to Venture, Growth, Buyout and other specialized funds managed by General Partners (GPs).

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General partners (GPs)

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Limited partners (LPs)

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Fund of funds and asset managers

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Advisors and consultants

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Placement agents and brokers

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Why invest in private equity?

Globally, the private equity industry has outperformed other investment asset classes, from public equities and bonds to other private market funds, over most time periods.

LPs have taken note, increasingly shifting investment portfolio allocations into private equity. Private market funds have grown significantly as a result, with global assets under management nearly tripling, to $4.1 trillion, over the past decade.

Even amid an unforeseen global pandemic, private market funds raised $989 billion in 2020, the third-highest figure on record.

Challenges for private equity investors

Investors have been allocating more capital to the private markets. Still, compared to the public markets, newcomers will encounter unique challenges in trying to pick the most promising funds and managers.

Making investment decisions with limited data

Public companies are required to disclose detailed, timely information about their operations, financial performance and projections. Conversely, private means private. Historically, private market investors receive only high-level fund performance data — often only by vintage — which can paint a partial or incomplete picture. Look-through data into underlying asset performance has been scarce.

Achieving desired investment returns in an increasingly competitive market

It’s not as easy to make money in private equity today as it once was. While still attractive, downward pressure on returns has come as a result of increased competition and as the asset class matures. There are more private equity firms in existence now than ever before, and collectively they are sitting on nearly $2.3 trillion in uncommitted capital, or “dry powder”. The asset class has matured with new funds, GPs, LPs and participants creating increased competition across the industry. Many of the private equity transformation plays have been adopted by operating companies themselves, and it becomes harder to create value within portfolio companies.

Relying on spreadsheets and manual processes to evaluate investment opportunities and strategies

Vetting private equity funds for potential investments can be an inefficient process for many LPs struggling to identify which opportunities are worth an initial deep dive. Analysts that manually build complex spreadsheets and models to conduct due diligence can find themselves stymied by a lack of actionable performance, investment and strategic data. However, mechanization and acceleration of the private equity fund due diligence process is now possible. Advances in data accessibility and analytics coupled with a capacity to look through fund-level data into the underlying asset classes. CEPRES is a pioneer in allowing LPs to peek under the hood of private equity funds to see details on each of their individual assets, helping transform the due diligence process from a value detractor into a value add.

Transforming private equity investing with data and analytics

Over the past two decades, technology has changed the way the public market and its investors operate. Now, the private equity market has entered its own digital transformation age. Underpinning this transformation is the rise in look-through data and analytics that allows LPs to make true data-driven investment decisions.

However, not all private equity data is created equal. Even the most robust analytics tools on the market may provide minimal benefit to investors if their data sources are unreliable. Some solutions scrape or aggregate information from generic fund-provided reports that lack detail and depth, providing a skewed look at true performance indicators and adding risk.

CEPRES pioneered private market look-through data, which offers investors proprietary deal-level data directly from the GP’s book of business, giving investors unprecedented data access and analytical lift.

Thanks to CEPRES, we were able to triple our US lower-mid market buyout allocation by expanding our due diligence efforts massively — all with a PE team of 3.

Investment Manager German Pension Plan

Ready to transform private market investing?

Connect with us to learn how CEPRES can help you:

  • Access unprecedented private market data and insights gleaned from more than 10,000 funds and 100,000 portfolio companies.

  • Transform due diligence from a value-detracting into a value-enabling activity.

  • Streamline communication and reporting between GPs and LPs and eliminate inefficient manual processes to better identify and evaluate investment opportunities and potential partners.

  • Connect disparate data sources to generate detailed comparisons and benchmarking of performance and trends for deeper insights into value drivers and risks.

  • Get a look-through into underlying deal-level metrics and operating company cash flow for individual assets within a fund.

Connect with our experts and learn more about CEPRES