Although private equity firms normally invest in privately held companies, on occasion, some firms will invest in publicly traded companies… or will retain shares in portfolio companies that are now publicly traded.

A quick study of the www.PrivateEquityInfo.com database in late November showed 306 private equity firms collectively held 560 publicly traded-companies in their portfolios.

From these 560 publicly-traded companies, I created an equally-weighted basket of stocks (PE-basket) to track through time. Now that several months have passed, let’s check the performance (thus far) of this PE-basket relative to several benchmark ETFs.

When you contact a private equity firm about a specific client, it’s important to contact the right person at the right firm. If you get the wrong person at the right firm you’ll still get the wrong answer. So, who’s the right person?

You’re an investment banker with an active engagement that warrants a look from the private equity universe, either as a new platform investment or an add-on acquisition. What’s the best way to approach the PE firms?

For each fund under management, private equity firms cycle through a multi-staged process consisting of:

• Fund raising from limited partners
• Portfolio acquisition search
• Investment
• Growth
• Divestment
• Dispersal of capital gains (or losses) back to the limited partners

The Obama administration has recently launched the Investment Adviser Act, which requires all Private Equity firms and other similar entities managing assets greater than $30 million to register with the Securities and Exchange Commission (SEC) as of June 2009.

Agency Theory addresses the potential conflict of interest created between parties associated with a private equity firm: external investors, managers, entrepreneurs, and/or the owners of the private equity firm involved. Although managers’s compensation is aligned with the private equity firm in a way that rewards a common, shared interest; conflict between these parties can still arise and affect investor behavior.

There are generally three types of agency relationships:

While there are no strict definitions of a private equity firm and a hedge fund, some distinct differences separate the two types of firms.

Private equity firms and hedge funds are similar in that both invest from a leveraged pool of capital normally contributed by limited partners; both compensate the management team based on a percentage of profits (typically 20%) as well as charge a fee on assets under management (typically 2%); and both are lightly regulated (as of this writing).

Carried interest is the profit earned on private equity investments by a deal-maker in a private equity house. Often known as “carry”, it allows private equity professionals to receive up to 20% of the profit from a company they sell. The “carry” can be a significant portion of a private equity professional’s total compensation.

If an M&A professional experiences difficulty getting good response rates from the private equity firms, it’s likely because he or she has yet to establish a solid working relationship with key contacts at these firms. Below is a best practice to contact the private equity firms about potential deal opportunities.

www.PrivateEquityInfo.com announces the launch of our database of private equity firms. The directory is geared toward middle market investment bankers, business owners, corporate executives and other M&A transaction-related professionals.