Top Private Equity Strategies for Today’s Investors.
Top Private Equity Strategies for Today’s Investors.
The typical PE process involves acquiring a company, improving its operations, finances, or strategy over several years, and then exiting the investment through a sale or public offering. The returns are shared between the investors and the PE firm, which earns both a management fee and a share of the profits.
How Private Equity Works
Fundraising
PE firms raise money from institutions like pension funds, insurance companies and wealthy individuals. These investors become limited partners (LPs) while the PE firm manages the fund as the general partner (GP).
Investment Phase
PE funds invest in private or public companies that can be taken private. This includes buying underperforming businesses, funding growth-stage firms or improving operations and management.
Exit Strategy
After increasing the company’s value, the PE firm sells its stake through methods like IPOs, mergers or acquisitions or sales to other PE firms with the goal of earning a strong return.
Fund Structure
The raised capital is combined into a private equity fund, typically set up with a fixed duration of 5 to 10 years. The GP is responsible for managing the fund and making all investment decisions.
Value Creation
Over 4 to 10 years, the PE firm works to improve the performance of the companies it owns. This includes strengthening strategy, cutting costs, boosting revenue and improving management.
Profit Distribution
Profits are shared between the LPs and the GP. The GP typically receives a management fee and a share of the profits (carried interest) usually after meeting a minimum return for the LPs.
Benefits of Private Equity
Benefits of
Private Equity
High Return Potential
Private equity investments often offer higher returns compared to traditional public market investments, especially over the long term.
Access to Exclusive Opportunities
Investors gain exposure to private companies and deals not available on public markets, including startups, turnarounds and growth-stage firms.
Active Value Creation
PE firms actively work to improve the performance of portfolio companies through operational improvements, strategic guidance and financial restructuring, which can enhance returns.
Diversification
Private equity can diversify an investment portfolio, as it behaves differently from public equities and can reduce overall volatility.
Long-Term Focus
The longer investment horizon (typically 5–10 years) allows companies to focus on sustainable growth without the short-term pressure of public market performance.
Alignment of Interests
PE firms often invest their own capital alongside investors, aligning incentives toward maximizing company value and investor returns.
High Return Potential
Mutual funds unite investors' money, diversifying portfolios to minimize individual stock or bond risks making investing safer and smarter.
Access to Exclusive Opportunities
Investors gain exposure to private companies and deals not available on public markets, including startups, turnarounds and growth-stage firms.
Active Value Creation
PE firms actively work to improve the performance of portfolio companies through operational improvements, strategic guidance and financial restructuring, which can enhance returns.
Diversification
Private equity can diversify an investment portfolio, as it behaves differently from public equities and can reduce overall volatility.
Long-Term Focus
The longer investment horizon (typically 5–10 years) allows companies to focus on sustainable growth without the short-term pressure of public market performance.
Alignment of Interests-
PE firms often invest their own capital alongside investors, aligning incentives toward maximizing company value and investor returns.
Tax Guide for Investors
Capital Gains Taxation (Effective from July 23, 2024)
Holding Periods
- Listed Securities: Long-term if held >12 months.
- Unlisted Securities & Other Assets: Long-term if held >24 months.
Tax Rates
Short-Term Capital Gains (STCG)
- Listed Securities: 20% (previously 15%)
- Unlisted Securities: Taxed as per the income tax slab rates.
Long-Term Capital Gains (LTCG)
- Listed Securities: 12.5% (previously 10%)
- Unlisted Securities: 12.5% (previously 20%)
Exemption Limit
- LTCG on Listed Securities: Exemption limit increased to ₹1.25 lakh per annum (from ₹1 lakh).
Indexation Benefit
Indexation benefits for LTCG have been removed across all asset classes.
Dividend Income
Taxable at slab rates. (TDS can be deducted at prescribe rate)
Interest Income
Taxable at slab rates. (TDS can be deducted at prescribe rate)
Others Income
Taxable at slab rates.
Private Equity Offering
