Private equity firms are important components in today’s global economy

Gone are the days of true corporate raiders, where companies were torn apart and sold to the highest bidder. The misconception in today’s market from investors, mind you not institutional investors but individual investors, is that when a private equity firm acquires a public company, the corporate raider mentality comes into play. This is far from the truth.

Private equity firms create real value through restructuring in the context of public companies. Remember that the road is unforgiving when a publicly traded company does something dramatic that could temporarily reduce a company’s revenue or asset base. It’s that fear that actually creates a deadlock and prevents most public companies from doing what a private equity firm is already prepared to do, which is to cut the fat, build a strong, solid foundation, and bring the company real growth to rent.

Private equity is sometimes a public company’s best friend, from filling key positions to preparing strategic acquisitions and building the company’s core business.

Take Sears Holdings (NASDAQ:SHLD) for example, the company was trading on the NYSE and faltered, today the company is trading on the Nasdaq hit a 52 week high of $195.18 acquiring K- Mart and solidified its position in retail once again. All of this was made possible by a move from Mr. Eddie Lampert, yes, private equity has been key to Sears’ current success.

My point is that in today’s market there are many private equity firms or funds, both large and small, that are active, some are public such as The Blackstone Group (NYSE: BX) and KKR Financial (NYSE: KFN ), some are extensions of brokerage firms such as Goldman Sachs (NYSE: GS), Bear Stearns (NYSE: BSC), Credit Suisse and even banks such as Citigroup (NYSE:C), while others such as Venrock ( by Laurance Rockefeller, General Atlantic (, United Max International ( and Matrix Partners ( are privately held, but they all have one thing in common. They all bring experience, value and positive change to the companies they either acquire or invest in.

Make no mistake, they are not passive investors, they all strive to make a profit for their investors and that only comes about through their contacts, experience, selected management team, portfolio companies and eventual exit strategy.

Basically, private equity is good in today’s market, and they’re in their element picking up the pieces of broken businesses that investors have begun to abandon.

Now, the next logical question an investor might ask while reading this article is how we, as individual investors, can participate in this trend. Well, the first point is that every investor in a hedge fund or private equity fund has to meet certain criteria before they can participate, they are called accredited investors.

An accredited investor can actually look for some of the large funds I mentioned earlier, or they can be approached through their current stockbroker, but for those who may not have $250,000 to $1,000,000 in a private equity situation If you want to invest, then the next step is to look at smaller specialty funds that can offer shares in the price range of $25,000 to $50,000 per share, which may be more appropriate for an individual investor.

Of course, the fund manager and his team are very important factors to consider when making a selection. Those mentioned today aren’t a bad place to start, as some private equity firms may be in the process of starting another fund within the family.

Therefore, private equity, while mostly misunderstood, is an important part of today’s market because without private equity firms investing in failing public and private companies, investing in new technologies and taking investors with them, global markets wouldn’t be as strong as you were. Without a doubt, companies like Sears, K-Mart, Burger King and countless others would be chapters in a book of economic history, as opposed to thriving businesses that employ thousands and feed the US economy.