A private equity firm purchases and increases companies for a few years and sells them at a profit. This is similar to real estate investing, only that you buy large companies rather than homes and commercial real estate, and you get paid a percentage of investment proceeds rather than a percentage on completed deals.

The firms raise money from investors called limited partners, commonly pension funds, endowments, insurance agencies, and high-net-worth individuals. They then commit the capital in many of strategies, including leveraged buyouts (LBOs) and investment capital investments.

LBOs, which use personal debt to purchase and assume control over businesses, are the most well-known strategy for PE firms. In LBOs, see post the firms seek to enhance their profits by simply improving a company’s treatments and maximizing the cost of its materials. They do this by simply cutting costs, reorganizing the business, minimizing or eliminating debt, and increasing earnings.

Some private equity firms happen to be strict financiers who all take a hands off approach to handling acquired businesses, while others actively support operations to help the company develop and create higher comes back. The latter strategy can develop conflicts of interest for both the money managers as well as the acquired company’s management, but most private equity finance funds still add worth to the firms they own personal.

One example is certainly Bain Capital, founded in 1983 and co-founded by Mitt Romney, who became the Conservative president nominee this year. Its past holdings consist of Staples, Drum Center, Clear Channel Marketing communications, Virgin Vacation Cruises, and Bugaboo Intercontinental.