Private Equity Best Practices: Understanding the Essentials of Private Equity: A Guide to Growth and Opportunity – Part 1

Understanding the Essentials of Private Equity: A Guide to Growth and Opportunity – Part 1

In the dynamically shifting landscape of business funding and growth strategies, private equity (PE) stands out as a beacon for entrepreneurial ventures aiming for rapid expansion and transformation. Private equity is not just an investment mechanism; it’s a partnership that can propel businesses to new heights. This guide delves into the essence of private equity, its workings, and why it might be the lever your business needs to catapult to the next level.

What Is Private Equity?

At its core, private equity refers to capital investments made into private companies from pooled funds. These funds gather capital from a variety of sources including pension funds, insurance companies, sovereign wealth funds, high net worth individuals, and family offices. Unlike public equity, private equity investments are not listed on a public exchange and often involve a more hands-on approach from the investors.

One of the hallmarks of private equity funds is their generally closed-ended nature, with a typical lifespan ranging from 10 to 12 years. This factor is crucial for businesses to consider, as the fund’s position within its lifecycle can significantly influence its investment strategies. The investment horizon for these funds usually spans three to seven years, though this can extend if deemed commercially beneficial.

Demystifying Private Equity Funds

Private equity funds are essentially pooled investments designated for the acquisition or financial backing of private companies. These funds act as advisors and are a separate entity with distinct ownership. Structured often as limited partnerships (LPs), they include both general partners (GPs)—the PE funds or fund managers—and limited partners—the investors whose capital is being managed.

A critical aspect of private equity funds is the carried interest, or “carry,” which pertains to an agreed portion of the fund’s profits earned beyond a predetermined return threshold, favoring an 80:20 profit split between the LPs and the fund managers. This arrangement underlines the incentive for PE fund members, ensuring their interests are closely aligned with the performance of the investments.

Benevolent Capital

At Benevolent Capital we have carved a niche for our investors by seamlessly blending traditional family values with cutting-edge investment strategies. Our approach is characterized by a thoughtful fusion of innovation and prudence, ensuring that every investment aligns with the long-term vision and legacy goals of our clients.

As principals we co-invest our own money in every deal we participate in, we do not charge our investors management fees, investors receive a 100% preferred gross return on their investment. After the 100% return (a 2X) the investor will receive a 70% net return with a 30% promote to the GP. This arrangement makes Benevolent Capital a trusted partner in safeguarding and growing wealth for our investors.

Benevolent Capital includes a world-class group of partners, associates and investors, and our portfolio now spans catalytic investments in venture capital, private equity, real estate development and a diverse collection of global professional soccer franchises. Our wide range of experience from managing successful companies, to completing management buyouts, acquisitions, and a wide variety of debt and equity investments totaling over $4 billion enables us to truly partner with the entrepreneurs and management teams of our portfolio companies and provide hands-on support and guidance towards realizing their full potential. Benevolent Capital has a proven track record of successful investments. Notably, our $200k investment in seed capital for Enzymatics, a biotech firm later ultimately acquired by Invitae (NASDAQ: NVTA), has yielded over $30MM in total returns for Benevolent Capital’s investors.

What sets us apart is not just our financial acumen but also our dedication to fostering meaningful relationships. Going beyond conventional investment practices, we prioritize open communication and transparency that allows us to build trust with our stakeholders, as principals we co-invest our own money in every deal we participate in making Benevolent Capital a trusted partner in safeguarding and growing wealth for our investors.

In an ever-evolving financial landscape, our expertise, coupled with Benevolent Capital’s commitment to hybrid family office investments, paints a picture of success, where financial prosperity meets enduring values.

About the Author

Brett M. Johnson, founder and CEO of Benevolent Capital, founder and partner of Fortuitous Partners, and co-founder and chairman of Rhode Island FC. He has a bachelor’s degree from Brown University and a Masters of Business Administration from the Presidential/Key Executive program at Pepperdine University. Brett is also a graduate from the Harvard Business School’s President’s Leadership Program in 2014. An active member of the Young Presidents Organization.

Disclaimer: The information provided in this article is for informational purposes only and should not be construed as financial or investment advice. Always consult with a qualified financial advisor or wealth manager before making any investment decisions.