A private equity firm is basically an investment management company that invests in privately held or non-public entities with funds raised from a group of investors, including high-net-worth individuals, insurance companies, pension funds, endowments, and other institutional investors.
In the private equity industry, these investors are collectively known as limited partners, or LPs, who have limited liability and have no say on how funds are managed. The fund management and overall execution of investments in private equity firms are performed by General partners, or GPs, who have full market liability.
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How Private Equity Works? An Overview
Through direct investments, these firms acquire substantial stakes in private companies. They then implement aggressive strategies to increase the overall valuation of these companies for a resale, and in many cases, an early IPO.
Today, while many private equity firms use specialized investment schemes, strategies such as leveraged buyouts, distressed funding, and growth capital remain in focus.
Based on their assets under management (AUM), the largest fundraised, and the number of successful investments, we have ranked the world’s largest private equity firms today.
11. Vista Equity Partners
AUM: $75 billion
Largest Fund Raised To Date: $17 billion (2019)
Notable Holdings: Ping Identity Corp. (identity management), Pluralsight (educational), Pipedrive (sales and marketing)
Vista Equity Partners is one of the largest and most successful tech-focused private equity firms with $75 billion of assets under management. Since its inception in 2000, Vista Partners has invested in more than 70 companies with a net transaction value of over $173 billion.
In 2018, Pitchbook ranked Vista Partners the top investor in the software industry ahead of the likes of Thoma Bravo and KKR. That same year, Buyouts magazine named Vista’s Marketo sale to Adobe, at $4.75 billion, the Deal of the Year.
Vista Partners is based in Austin, Texas, and has four other offices across the United States. Some of its noteworthy investments and buyouts include Cvent (event management software) for $1.6 billion, Ping Identity for $600 million, and Pipedrive (CRM) for $1.5 billion.
10. Hellman & Friedman LLC
AUM: $70 billion
Largest Fund Raised To Date: $20 billion (2021)
Notable Holdings: Allfunds (fund distribution), Edelman Financial Engines (investing advisor), UKG (HR management)
Hellman & Friedman LLC is a San Francisco, California-based private equity firm that mainly focuses on leveraged buyouts and growth capital. It was founded in 1984 by two former investment bankers Warren Hellman and Tully Friedman.
Before establishing the company, Hellman was a founding partner at a venture capital firm Hellman, Ferri Investment Associates (now known as Matrix Partners). Tully Friedman co-founded another PE firm Friedman Fleischer & Lowe (FFL Partners), in 1997.
Hellman & Friedman has a track record of earning quick returns on its investments. In February 2000, the firm acquired 37.5% of Formula One Group (the holding company behind FIA Formula One World Championships) for about $750 million. The firm sold its stake to a German media company in less than a month for a hefty profit.
Through investments in growth opportunities, Hellman & Friedman has made early profits on companies like AlixPartners (consultancy), Getty Images, Goodman Global (heating and air conditioning), and Axel Springer (publishing).
9. TPG Capital
AUM: $91 billion
Largest Fund Raised To Date: $14.2 billion
Notable Holdings: McAfee, Vice Media, Energy Future Holdings (club deal)
TPG Capital, formerly Texas Pacific Group, is a large investment firm that engages in private and public equity and credit (debt) markets. TPG manages multiple separate funds for strategic investments, including leveraged buyouts, distressed securities, venture capital, and sector-focused equity.
Some of the firm’s largest and most notable transactions include the buyout of Continental Airlines in 1993, Burger King in 2002, Neiman Marcus (with Warburg Pincus) in 2005, and Freescale Semiconductor in 2006.
In April 2008, during the height of the credit crisis, TPG invested more than $7 billion in Washington Mutual, a savings bank company.
Just a few months later, in September, Washington Mutual filed for bankruptcy after the U.S government announced the takeover of its largest subsidiary, WaMu bank, costing TPG a ton of money. This deal is often branded as one of the worst in the history of private equity.
8. Thoma Bravo
AUM: $78 billion
Largest Fund Raised To Date: $17.8 billion (2020)
Notable Holdings: Sophos, Imperva (IT security), SolarWinds (IT management), Qlik (analytics), J.D Power (market research)
Thoma Bravo, LP, is a U.S based private equity firm that specializes in technology and software company investments. Since its inception in 1980, the firm has invested or acquired more than 300 technology companies with a total value of $85 billion.
In 2020, its flagship buyout fund (Thoma Bravo XIV) raised a record $17.8 billion, the largest by any tech-focused private equity fundraising at that time. It was only eclipsed by Silver Lake Partners’ $20 billion fundraising in 2021.
A joint research published in 2019 by Dow Jones and HEC Paris, an international private business school in France, ranked Thoma Bravo the best performing PE firm on aggregate based on funds raised between 2005 and 2014. Its funds have a net annual return of 30%, higher than some of the largest PE firms.
Thoma Bravo has an illustrious and long-standing history. The firm succeeded Thoma Cressey Equity Partner, a middle-market investment firm that broke out from Golder Thoma & Co. in 1998. Golder Thoma & Co. (GTCR) is widely acknowledged as a pioneer of consolidation investment strategy.
7. Bain Capital
AUM:
Largest Fund Raised To Date: $11.8 billion (2007)
Notable Holdings: Varsity Brands, Virgin Australia, U.S LBM Holdings
Bain Capital is a Boston-based alternative investment firm that engages in venture capital, fixed income (credit), private equity, and sector-focused investment cycles. The firm was established by management consultancy Bain & Company as a separate entity in 1984.
In its initial years, Bain Capital focused strictly on venture deals managing high-profit making investments in Staples, Inc. (office supply retailer) and the Gartner Group. By the late 1980s, however, the firm shifted its investment strategy to private equity based on growth capital and leveraged buyouts.
During the 2000s buyout boom, Bain Capital was involved in several high-profile transactions, including that of Toys “R” Us (toy and baby products retailer), Dunkin’ Brands, Hospital Corporation of America. The buyout of technology and financial services company SunGard by Bain and other PE firms was one of the largest in recent history.
During that time, Bain Capital (along with its partner PE firms) committed more than $25 billion combined on several large retail businesses across the U.S and in Africa.
6. EQT Partners/ EQT AB Group
Total AUM: $80 billion
Largest Fund Raised To Date: $18.7 billion (2020)
Notable Holdings: SUSE (open-source software company)
EQT Partners is one of the world’s largest investment organizations that invest mostly in northern and central Europe, North America, and China. The firm has two main business segments, Private Capital, which includes private equity venture funds, and Real Estate.
The EQT Private Equity makes investments in mid and large-cap companies through control and co-control investment strategies. For smaller companies, including family-owned businesses, it focuses on growth investing.
The investment group was established in 1994 by AEA Investors, a U.S based private equity firm, and Investor AB, the largest investment holding company in Sweden controlled by the prominent Wallenberg family.
As of June 2021, EQT Partners have 26 active funds with investments in nearly a hundred companies in the U.S, Europe, and Asia. The total annual revenue of EQT portfolio companies is more than $34 billion.
5. Warburg Pincus
AUM: $60 billion
Largest Fund Raised To Date: $15 billion in 2007 and 2018
Notable Holdings: Ant Group
The history of Warburg Pincus can be traced back to 1939 when the prominent Warburg banking family established E.M. Warburg & Co. It merged with the financial consultancy firm Pincus. Co in 1966 to form E.M. Warburg, Pincus & Co.
The new firm specialized in venture investing. It managed some of the largest venture capital funds in the 1980s and 1990s. Warburg Pincus is also the founding member of several venture capital associations in the United States.
However, after the 1970s, the firm gradually developed strategies to invest in more mature companies (private equity), which later became the firm’s focus. Today, Warburg Pincus deals exclusively in growth investments in various sectors, including financial services, healthcare, real estate, technology, and business services.
Since its inception, Warburg Pincus has invested $90 billion in more than 900 companies globally.
4. CVC Capital Partners
Private equity AUM: $86.6 billion
Largest Fund Raised To Date: $21.3 billion (European Equity Partners) in 2020
CVC Capital Partners is perhaps the largest among top private equity firms based outside the United States, with over $114 billion in total assets under management and $110 billion in capital commitments since its inception.
The firm was initially established in 1981 as the venture capital arm of Citigroup in Europe. After almost a decade of investing in early-stage startups, the firm expanded into the private equity business focusing on leveraged buyouts. CVC eventually broke out from the American banking group in 1993 to establish itself as an independent private equity firm.
CVC raises funds in two cycles, one for Europe (CVC European Equity Partners) and another for Asia (Capital Partners Asia Pacific). Buyout, or growth, funds for investments in the U.S are also raised time-to-time.
The first widely acknowledged investment by CVC Capital Partners in the early 2000s was in Formula One Group. The company was later acquired by U.S based Liberty Media Corporation in 2016.
Between 2010 and 2015, CVC acquired majority stakes in companies like Wireless Logic (an M2M service provider), Sky Betting & Gaming, Tipco (betting operators), and Douglas AG (German cosmetics retailer).
3. The Carlyle Group Inc.
Corporate PE AUM: $137 billion
Largest Fund Raised To Date: $18.5 billion in 2018
Notable Holdings: Booz Allen Hamilton, Jagex Limited (developer studio of popular MMORPG RuneScape), Nielson Holdings.
The Carlyle Group is a Washington DC-based private equity firm known for its expertise in leveraged buyouts and a highly diverse portfolio of companies. According to the Private Equity International index, PEI 300, the Carlyle Group led the industry by total capital raised between 2010 and 2015.
Unlike most top private equity firms, Carlyle Group has a strong presence in the defense industry with stakes in companies like Booz Allen Hamilton, one of the world’s largest defense consulting firms.
In the 1990s, the group made several high-profile defense acquisitions, the most famous of which was the United Defense Industries in 1997 for $850 million. The company was later taken public and was eventually acquired by UK’s BAE Systems. Other industries in which Carlyle Group has a vested interest are technology and business services, healthcare, media, and finance.
In 2005, a consortium of The Carlyle Group, Clayton, Dubilier & Rice, and the private equity division of Merrill Lynch acquired The Hertz Corporation (one of the largest car rental companies in the world) in a $15 billion leveraged buyout deal.
The next year, Carlyle Group (along with Blackstone Group and TPG Capital) completed an even larger transaction with the takeover of Freescale Semiconductor at $17.6 billion. It was the largest leveraged buyout in the tech industry at the time.
Apart from the traditional, corporate private equity platform, the firm also offers specialized investment solutions – through AlpInvest Partners, which utilize a wide range of strategies within the private equity asset class. AlpInvest has about $60 billion in assets under management and more than $74 billion in capital commitments since its inception.
AlpInvest function as a private equity investment manager for some of the world’s largest pension funds and endowments.
Its core investment strategies include, primary funds (or FOF), in which institutions holds portfolio of other investment funds rather than directly investing in companies and co-investments, where they acquire minority stake in a company alongside a financial sponsor or other PE investors.
2. KKR & Co. Inc
KKR founding partner Henry Kravis at Economic World Forum in 2009 | Image Courtesy: WEF
AUM: $252 billion (December 2020)
Largest Fund Raised To Date: $18.5 billion in 2021
Notable Holdings: WebMD Health Corp., Axel Springer, Coty, Inc., Coastal GasLink Pipeline project, Ultimate Fighting Championship (club deal).
KKR & Co. Inc is one of the biggest names in the private equity industry with $650 billion total enterprise value of its completed PE deals (as of December 2020) and its portfolio companies generating $238 billion in annual revenue.
The firm is named after three of its founding partners, Jerome Kohlberg, Henry Kravis, and George R. Roberts, who initially completed a series of private equity investments in the 1960s and 70s on behalf of Bear Stearns, a defunct New-York based investment bank. The three broke out from Bear Stearns to establish their own firm in 1976.
In 1988, KKR successfully carried out the buyout of RJR Nabisco in an astronomical $31.1 billion deal. The deal remained the largest leveraged buyout on record until 2007 when it was surpassed by the buyout of TXU Energy by a consortium of KKR and TPG Capital.
KKR & Co. was the primary catalyst in the leveraged buyout boom of the 1980s, during which the firm made four multi-billion-dollar buyout deals (excluding RJR Nabisco).
KKR has made significant investments in energy and digital companies. In 2014, the firm bought a 30 percent stake in Acciona Energy that operates renewable energy generating facilities (mostly wind farms) globally for $567 million. In 2017, it acquired WebMD in a $2.8 billion deal.
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1. The Blackstone Group
Corporate PE AUM: $112 billion
Largest Fund Raised To Date: $26 billion in 2019
Notable Holdings: Ancestory.com LLC, Bumble Inc., Luminor Bank (the third largest bank in the Baltic region), and Freescale Semiconductor, Inc.
The Blackstone Group Inc. was founded as a strictly merger & acquisition advisory firm in 1985. But after just two years of advisory services, the firm entered the private equity business by raising $630 million in funds from institutions, such as General Motors pension fund and Prudential Insurance Company.
Over the years, Blackstone Group expanded into other alternative asset classes, including real estate, insurance, and hedge fund solutions. However, corporate, private equity has remained its primary focus.
In 2002, Blackstone raised a record $6.45 billion for its fourth buyout fund, which helped the firm finalize the largest PE deal of that year (TRW Automotive buyout in $4.7 billion). Blackstone was also involved in a mega $11.3 billion buyout of financial services and technology company SunGard in 2005.
Other notable club deals (buyouts involving two or more PE firms) in which Blackstone has either led or participated are TDC (2005), Neilson Holdings (2006), and Hilton Worldwide (2007).
Private Equity International, a global publication on PE, ranked Blackstone as the largest private equity firm by total capital commitments in 2019. Most of the private equity transactions by Blackstone are leveraged buyouts.
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Frequently Asked Questions
Who Invests In Private Equity Funds?
Private equity funds allow various institutional investors, such as pension funds, endowments, foundations, and insurance companies, to diversify their investment portfolios. According to a report, pension funds from around the world invested more than $300 billion in U.S based PE funds in 2019.
Apart from large institutional investors, private equity funds have become a preferred choice for high net-worth individuals and family offices.
Where Are The Most Private Equity Firms?
Globally, there are about 7,000 to 8,400 active firms (depending on the source) that engage in private equity transactions. The United States has the most PE firms in the world as nine of the eleven largest private equity firms in this list are based in the U.S. It is followed by Great Britain, China, and Canada.
How Do Private Equity Funds Generate Profits For Their Investors?
Private equity firms make profits on their investments in one or a combination of different ways. PE firms may gain a steady flow of debt repayments or cash through the operational profits of their portfolio companies. Streamlining business operations and expansions enhances this earning.
Eventually, the private equity firms realize their investments after some time by either selling their portfolio companies for a profit or taking the company public through IPOs. Most of these profits go to the investors or LPs of private equity firms.
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How Do Private Equity Firms Make Money?
Private equity firms make money through fees and carried interest. The first and foremost fee paid by investors is a management fee — 2% of their committed capital annually. This fee is levied by PE firms regardless of whether it generates a profit or not.
When a PE firm makes capital gains by earning profits on its portfolio companies, it receives a portion of the profits (usually, 20% of the profits). This is called carried interest, or performance fee. Private equity firms generate most of their earnings through carried interests.
