Chapter 15
Harvesting private equity investmentsa
15.1 INTRODUCTION
The principal vehicle through which private equity investments are made is the limited partnership. This structure typically has a finite life of 10 years from its establishment (with life extensions of up to 4 further years frequently included in limited partnership agreements). Although the repayment to the limited partners (LPs) with illiquid securities of the portfolio companies is sometimes unavoidable, it is highly undesirable, as individual LPs will receive neither liquidity nor control. Consequently, general partners (GPs) that manage the fund are expected to exit the companies in the fund’s portfolio within the life of the fund in order to return the LPs’ investments. Value is realized either part way though the life of an investment via a recapitalization or when the business is ultimately sold. As serial sellers of businesses, private equity funds have well-developed sales skills and are able to draw upon a variety of exit routes to maximize cash returns to investors. Given that private equity investors know that there is an imperative to divest their investments within the life of the fund, exit considerations figure prominently in any investment case that a GP builds.
In the private equity market, an exit is the process by which private equity funds realize the return on their investments in companies. Through an exit, the private equity fund not only obtains financial returns but also allows the ...
