The formation of Private Equity
Greetings, guys! Lately, i ve been reading a book regarding LBO.
As far as im concerned, private equity firms (also known as financial sponsors) are mainly in charge of LBOs. However, I am quite confused about the term "Leveraged" and "investors".
Do those investors of private equity firm receive fixed payment as an interest for lending the money to the private equity firms or they receive amount of money aligned to the performance of the LBO which is flexible?
Guys, i ve figured out the question i had. Although no one has answered my question, i am happy to type in my conclusion drawn.
Basically, there will be at least three types of stakeholders in a LBO process.
The first one is the founding member of the financial sponsor(private equity firm). He will be in charge of setting up the fund with some amount of money and recruiting the workers such as analysts. Example will be a unit of Ibank.
The second type are the investors who inject money into the fund set up by the private equity firm. They will be entitled as limited partners and their profit will be aligned with the future performance of the LBO and the exit of posituon situation. Example will be a pension fund or mutual fund managers.
Usually, the money accumulated by the former two kind of stakeholders wont be sufficient to finance the LBO process. The residual insufficiency will be backed by leveraging. Those are the money lender. They will receive payment of interest regardless of the performance of the LBO result.
Correct me if im wrong.
P.S. Are those money lender still considered "investors"?
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