How does a private equity firm make profit?

terry left one form of repayment.....

since the venture capitalist now has a stake in the firm, it also has a stake in the profits.

usually a PE firm will require at least one member of the board be appointed by the firm, or the senior staff could be appointed by the firm or retain some of the control. profits from undistributed earnings could be awarded.

or as terry said, shares could be issued, dividends paid on a regular basis. or the equity could be in the form of bonds which mature. there are lots of ways a PE firm could sell off pieces of the investments. In some forms the PE firm will make hedge instruments just to limit the risk, like making the company take out loans (either refinancing or capitalizing the plant/inventory)

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Private equity firms generally receive a return on their investments through one of three ways: an IPO, a sale or merger of the company they control, or a recapitalization. Unlisted securities may be sold directly to investors by the company (called a private offering) or to a private equity fund, which pools contributions from smaller investors to create a capital pool.

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