Private Equity Firms

A private equity firm, or PEF, is a type of investment management company that buys and sells stakes in other companies. The business strategy known as “leveraged buyout,” where borrowed funds are used to acquire a target, is a key tool of private equity firms.

The modern concept of private equity dates back to the early 20th century, when wealthy individuals provided capital to entrepreneurs in the form of an ownership stake, or “equity,” as opposed to a loan.

In 1901, John Pierpont Morgan, as part of his plan to consolidate American steel companies into the U.S. Steel Corporation trust, financed the $480 million acquisition of Carnegie Steel Company from Andrew Carnegie and Henry Phipps. Phipps took his share and created a private equity fund called the Bessemer Trust. Today Bessemer is a sprawling wealth management enterprise with more than $120 billion under its control.