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PE Fund stands for Private、ty Fund. It is an investment fund that aims to increase corporate value and profit by investing mainly in unlisted companies and businesses, improving management and supporting growth.
PE common stock investments that buy and sell listed shares on the market, PE funds may be deeply involved in investment management.
The point to be considered as an investor is how to improve and increase corporate value after the acquisition, rather than “acquiring”. In particular, LBO uses borrowings, so the cash flow and repayment capacity of the investor are important.
First Con まず
PE Fund is a mechanism to aim for profit by selling corporate value after acquisition rather than buying a company.
The basic flow is as follows:
| Stage | 内容 |
|---|---|
| 買収 | Investment in unlisted companies, business divisions, and non-publicization targets |
| 改善 | Management reform, cost improvement, growth investment, governance enhancement |
| Sold | Repurchase to other companies, relisting, and selling to other funds |
It is important for individual investors to think that it is always good because it contains PE funds.
You need to check which business you want to improve, which risk and how to make a exit.
About PE Fund
PE stands for Private、ty.
This is a "non-public stock" and is generally an investment in companies and businesses that are not free to buy or sell on the stock exchange.
The PE Fund will collect funds from investors and invest in companies and businesses using its funds.
Investments include:
- Unlisted Companies
- Non-publicization of listed companies
- Major business
- Medium and small businesses that need business succession
- Companies that have a business improvement
The difference between common stock investments is the high degree of involvement.
| 項目 | Stock Listing | PeFund |
|---|---|---|
| Investment | Shares of Listed Companies | Unlisted companies and businesses |
| Investment period | Wide range from short to long term | It is easy to become a few years |
| Management | Normally limited | Often involved in management improvement |
| Benefits | idend | Profit on sale after improvement of corporate value |
| Liquidity | Easy to buy and sell on the market | Easy to sell |
PE Fund is not just a stock sale, it is close to the investment of business participation type.
How to make profit
The basics of PE funds are to raise and sell corporate value.
The flow is simple, but it requires advanced research and management decisions.
Acquisition of Company
First of all, we are looking for companies with growth and improvement.
For example, a company that is weak in management, a company that requires business succession due to lack of successor, and a company that is difficult to make medium- to long-term reform in the listed market.
Before the acquisition, we will conduct due diligence such as finance, business, legal, tax, technology, and human resources to confirm whether it is really good to invest.
Improve management
After acquisition, we will improve management to increase the value of the investee.
Typical initiatives include:
| Improvement area | Example |
|---|---|
| Revenue improvement | Price revision, sales enhancement, profit margin improvement |
| Cost improvement | Unprofitable business arrangement, procurement review, operational efficiency |
| Growth Support | Overseas Expansion, M&A, DX, Reinforcement |
| ガバナンス | Management system, KPI and internal control |
| 財務 | Revise borrowings and capital composition |
If a company is really good at this stage, it will be easier to evaluate when selling.
Sell and Collect
PE Fund is not responsible for investing.
After a certain period of time, we will collect investment funds in the following ways:
- Sell to business companies
- Sell to other investment funds
- Relisted on IPO
- Sell to management and existing shareholders
If this exit strategy is successful, funds can be distributed to investors.
On the other hand, if you do not find a buyer, you may not be able to recover as expected.
About LBO
In the acquisition of PE funds, borrowings may be used.
This is called LBO, Leveraged Buyout.
Simply put, it is a way to acquire companies using self-financing as well as debt.
| 項目 | 意味 |
|---|---|
| Leverage | Use borrowings to increase your investment |
| LBO | Acquisition using borrowing |
| Repayment | Cash flow of investee companies is important |
At LBO, it is important that companies after acquisition can make cash stable.
If a company with a low operating cash flow is put on a large borrowing, the repayment burden will be overlapping when economic deterioration or business deterioration.
Therefore, in the acquisition of LBO type, it is necessary to see not only profit but also cash creation output.
Benefits of PE Funds
PE funds can be added to your company.
Typical benefits include:
| メリット | 内容 |
|---|---|
| Improve management | Easy to implement reform as an external shareholder |
| Gain growth funds | You can use funds for recruitment, M&A, overseas expansion, etc. |
| Strong management system | KPI, internal control and financial management |
| Useful for business succession | Become a successorless company choice |
| Easy to reform | It becomes difficult to depend on short-term stock price |
In particular, in small and medium-sized enterprises, there is a meaning to include not only funds, but also human resources, management and M&A know-how.
PE Fund Risk
On the other hand, there is a risk for PE funds.
| Risks | 内容 |
|---|---|
| Rent | LBO may overlap repayment |
| Short-term profit pressure | There is a possibility of rushing profit improvement by conscious of selling |
| Cost reduction | Personnel reduction and business sale |
| Exit risk | Possibility that IPO or sale will not proceed as expected |
| Less information | Unlisted companies have less public information |
PE Fund aims to improve corporate value, but not all projects succeed.
If the acquisition price is too high or the borrowing is too heavy, the investment return will be worse if there is no room for management improvement.
The Perspective of Individual Investors
When an individual investor sees PE fund news, check the following:
| News | Points to see |
|---|---|
| PEd PE Fund | What do you think after the acquisition? |
| Non-publicization of listed companies | Handling of minority shareholders, purchase price, and growth strategy |
| Fund Support | Loan and Capital Policy |
| Business sale | Quality of business that remains after sale |
| Relisted | Is it really profitable? |
The important thing is that the acquisition itself is not determined as a favorable material.
In some cases, if the PE Fund enters, there may be a change, or the borrowing burden or short-term profit pressure may be overlapping.
3 things that beginners should remember
There are three points to learn about PE funds.
| Point | 内容 |
|---|---|
| Investment | Unlisted companies and businesses |
| Benefits | Management improvement and sales gain after improvement of corporate value |
| Main risks | Lease burden, short-term profit pressure, exit risk |
PE Fund is not the end of its acquisition.
What changes after the acquisition is essential.
PE Fund is an investment fund that mainly invests in unlisted companies and businesses, enhances corporate value through management improvement and growth support, and aims to gain profit from selling.
経営 common stock investments, we may be deeply involved in the management of the investor.
In particular, the cash flow and repayment capability of the investee companies are important to utilize borrowings in LBO.
When you look at the investment news, you should check not only the fact that you bought a PE fund, but what will be improved with this acquisition.
Real value improvement is more important than topicality.
出典
- Investor.gov "Private Equity Funds": https://www.investor.gov/index.php/introduction-investing/investing-basics/investment-products/private-investment-funds/private-equity
- SEC "Private Funds": https://www.sec.gov/resources-small-businesses/capital-raising-building-blocks/private-funds
- SEC "Private Fund Adviser Overview": https://www.sec.gov/about/divisions-offices/division-investment-management/private-fund-adviser-overview