1. PRIVATE EQUITY: THE BASICS
Long-term investing to build stronger, more
competitive companies.

2. WHAT IS PRIVATE EQUITY?
By definition, private equity is an asset class
in which financial buyers purchase stakes
in companies that are not publicly traded.
But in reality, private equity is much more…

3. PRIVATE EQUITY IS…
A source of capital
for companies in need.

4. PRIVATE EQUITY IS…
A key driver of economic growth
and innovation.

5. PRIVATE EQUITY IS…
A job creator and
employer of millions of
Americans across the
country.

6. PRIVATE EQUITY IS…
A steady source of
income for its investors
such as public and private
pension funds, university
endowments and
charitable foundations.

7. Private equity firms seek out
underperforming or undervalued
companies.
By working with these companies
managers unlock significant value by:
• improving business strategy
• injecting managerial expertise
• advancing production technology
• expanding distribution
HOW PRIVATE EQUITY WORKS

8. The essence of private equity is the alignment of interests
between management and business owners. This structure
supports long-term planning without constant pressure
of delivering quarterly results to public shareholders
focused on short-term results.
There is one shared objective: increasing company value.
Together, management and owners make business
decisions to achieve this goal.
THE PRIVATE EQUITY ADVANTAGE

9. Private equity funds are typically structured as
partnerships:
Private Limited
Equity Fund Partner
Manager Investors
(GP) (LP)
Private Equity Fund
(Limited Partnership)
Portfolio Company 1 Portfolio Company 3
Portfolio Company 2
THE PRIVATE EQUITY MODEL

10. Private equity firms generally invest in
companies for several years or more. The goal
— in every case — is to work with
management to improve the company’s
performance and make it a stronger, more
competitive enterprise.
PRIVATE EQUITY IS A LONG-TERM INVESTMENT

11. The private equity industry…
• Includes more than 2,400 U.S. based private equity
firms, and 3,400 worldwide.
• Invests more than $1.6 trillion in 15,200 U.S. based
companies over the last ten years.
• Sponsors companies that employ more than 8 million
workers worldwide.
BASIC INDUSTRY FACTS

12. Pension funds are the largest investors in private equity.
Other, 13%
Public Pension
Sovereign Wealth Funds, 29%
Funds, 6%
Endowment Plans, 9%
Insurance
Companies, 9%
Private Sector Pension
Funds, 13%
Banks & Investment
Banks, 9%
Foundations, 12% (based on capital invested in 2010)
WHO INVESTS IN PRIVATE EQUITY?

13. Limited partner investors receive the lion’s share of
returns generated by private equity.
Limited Partner Investors Private Equity Fund Managers
Profit - $15.6 billion
Profit - $4.3 billion
Original Investment - $10 billion
Returns from $10 billion fund assuming a 3x multiple
WHO BENEFITS FROM PRIVATE EQUITY?

14. Private equity investing provides outsized returns to
help investors meet their retirement, educational and
charitable goals.
10-Year Annualized Return
50%
40%
39.6%
30%
20%
10%
11.3%
6.3%
0% 2.7%
U.S. Private Equity Index Top Quartile S&P 500 Index Russell 2000 Index
Private Equity Funds
(Vintage Year 2001)
PRIVATE EQUITY PROVIDES SUPERIOR RETURNS

15. Private equity-backed companies increase their net
earnings through:
revenue growth (40% of gains)
cost reductions (30%)
acquisitions (20%)
Private equity transactions have yielded as much as
$15 billion in additional output at manufacturing
firms.
CREATING VALUE

16. Private equity-backed companies that went public have
outperformed their competitors and the markets.
Average Return in 2010
30%
20% 23%
10% 12%
0%
Private Equity-Backed Companies Publicly Traded Competitors
Productivity at private equity-backed companies grows
2 percentage points faster than at their competitors.
IMPROVING COMPETITIVENESS

17. Private equity invests in a wide variety of industries.
Other, 2%
Energy, 5%
Industrials, 19%
Food & Agriculture, 10%
Telecoms & Media, 10%
Business Services, 18%
Information
Technology, 8%
Healthcare, 10%
Consumer, 18%
(based on capital invested in 2010)
DRIVING ECONOMIC GROWTH

18. Since the start of the Great Recession, private equity has
invested almost $8.6 billion in 59 bankrupt companies.
Deal Value (Mil.) Number of Deals
$6,000 30
Deal Value (Mil.) Number of Deals
$5,000 25
$4,000 20
$3,000 15
$2,000 10
$1,000 5
$0 0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 YTD
Private equity is a source of financing during periods of
tight credit.
AIDING ECONOMIC RECOVERY

19. Companies in the top ten states receiving private equity
investment employ more than 4.5 million people.
Capital Invested Number of Employees
$250,000 1,000,000
Capital Invested Number of Employees
$200,000 800,000
$150,000 600,000
$100,000 400,000
$50,000 200,000
$0 0
(based on capital invested 2000-2010)
INVESTING IN JOBS

20. Visit www.pegcc.org to find out more about
the private equity industry.
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