Private Equity and Fund Raising

The process of fund raising for private equity funds is all about private equity firms looking for capital from investors. Most of the time an investor will invest in a certain fund that is managed by a company. This makes them a limited partner in the equity fund instead of an investor in the company. What this means is that the investor will benefit only from those certain investments that they have made in the company and in particular in that one fund in which they have invested.

Most of the investments that are put into private equity funds will come from what are known as institutional investors. In 2006 the most productive investors who put money into equity funds came from banks, financial institutions, and public pension funds. Together the total amount of all commitments equaled 40% from global investors. Other productive investors include family foundations, family offices, endowments, corporate pension plans, and insurance companies. In order to lower risk to investors there are some private equity fund companies that will invest in other private equity funds. This type of fund accounted for about 14% of all of the national and international commitments that were made to private equity funds in 2006.

Over the years private equity funds have been on the rise and this means that investors are on the rise as well. Many private equity fund managers will often invest their own funds, usually providing about 1% - 5% of the investment capital. Private equity fund managers will often use the services of fund raising teams so that they can raise more capital for their funds. These fund raising teams are often called "placement agents". Over the years the use of placement agents has risen. Placement agents, on the behalf of the private equity fund manager, will talk to potential investors. When an investment is made the placement agent will earn about 1% of the total investment commitment.

A private equity firm will spend varying amounts of time on fund raising for the capital it needs. This time will vary depending on the amount of interest that is shown for the fund by investors. The track record of the fund in question, along with the current market condition, will also have a factor in how much time is spent fund raising. Some companies will spend only one or two months on raising investments in which time they aim to meet the goal they have set for themselves. They can meet these investment goals often quite easily by getting commitments from investors in their other funds. Many times a funds past performance can be a big incentive for investors. When the target for fund raising has been met there will a final close. After the close, new investors won't be able to invest in that particular fund. The exception to this is rule is investors who are willing to buy an interest in the fund via the secondary market.