An Introductory Primer: The ABCs of PE (Part 1)

by: Kay Francoeur


At ECA, we primarily work with private equity. More than 85% of our clients are investor owned or backed, and we’re experienced in placing great candidates for PE firms, for portfolio operations leaders, and with portfolio companies.  


Private Equity is a broad term used for one category of “alternative investments” that focus on companies not listed on a stock exchange. It’s a crucial market to understand, since PE consistently now outperforms traditional investments by a wide margin. But there is a lot of diversity in the approaches PE firms take in order to generate significant returns for their investors. In addition to their different takes on investment strategy (e.g. private credit a.k.a. private debt, growth equity, buyouts), PE firms vary a lot by the industries they specialize in, the geographies their portfolio companies encompass, and, critically, by the sizes of the investments they typically make.  


Over the next week or so, we’re going to break down these main facets of PE, starting with a basic overview of what PE actually is and why established companies might seek support from these types of investors. 


What are PE Firms? Overview 


PE investors are individuals or entities that invest capital into a private company in exchange for equity interest in that business. To invest in PE, an organization or individual might be required to invest millions of dollars, or be what’s known as an accredited investor.  


People who invest in PE funds are called “limited partners”. LPs have no decision-making authority over the private equity firm or the investments the fund is making. The PE firm itself is also known as the “general partner” (GP) and they do have the decision making authority.  


LPs pledge capital and are locked in for the entire life span of the fund, which can last up to a decade, often with the possibility for a 1-2 year automatic extension built in, meaning those assets LPs invest might remain illiquid for up to 12 years. 


But in return for this illiquidity, investors can usually expect much higher returns than they’d get from public stock or bond markets. With these rates of returns, it’s unsurprising that the PE market is still growing and outperforming all other alternative asset classes, as well as outperforming public markets by 14% on average.  


There are a couple of main reasons why a company might seek PE investors:  

  1. Often companies have a significant capital need that’s beyond the scope of traditional bank financing
  2. The company owner or founder is considering a partial or total sale of their business, in order to retire or pursue new entrepreneurial ventures


Why Seek a Career in PE? 

PE is a popular exit plan for management consultants looking for new growth opportunities where they can apply their existing skillset while having significant end-to-end impact on improving portfolio companies. A role in PE can be incredibly satisfying, with the kind of sustained stakeholder relationships that many consultants feel that they miss out on when they only interact with clients for short-term engagements. A career in PE can also be very lucrative, because of the potential for equity or “carry,” though this aspect of compensation is high risk/high reward.  


There are important differences among the various types of PE firms and their investment strategies. A lot of these distinctions pertain to the stage of the company PE firms are investing in, and the sizes of investments made.  


Candidates who are thinking about applying for roles with PE firms and PE-backed companies would do well to understand these differences and update their LinkedIn profile to showcase how they are a great fit for the kinds of PE opportunities that most appeal to them. 


Stay tuned as we take a deeper dive into these differences in PE firms and investment strategies over the course of the rest of the posts in this series.  



Kay Francoeur is a Project Manager at ECA Partners. She can be reached at [email protected]



Kay Francoeur
Project Manager

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