Private Equity
Private equity firms are investment management companies that raise capital from institutional and high-net-worth investors to acquire controlling ownership stakes in established but failing privately held or publicly traded companies.
The goal of PE is to increase the value of these businesses through operational improvements, strategic guidance, and financial restructuring, often using significant leverage (debt financing), before exiting through a sale or IPO.
As with VCs and hedge funds, private equity firms earn profit based on the 2 and 20 model, which utilizes a 2% management fee (based on AUM), plus 20% of all profits.