How do private equity firms typically return funds to their investors post-acquisition?

Private equity firms typically return funds to their investors after an acquisition primarily through exits. This major exit strategy can take the form of a sale of the company to another entity or through a public offering, commonly known as an IPO (initial public offering). When a private equity firm successfully sells a portfolio company, the proceeds from that sale are distributed to the investors. Similarly, if the firm opts for an IPO, the shares become publicly traded, allowing investors to realize returns when they sell their shares in the public market.

The choice of exit strategy often depends on market conditions, the company’s performance, and the overall investment thesis. Exiting through a sale or public offering generally provides a clear path for returning capital to investors and can significantly enhance the returns over the life of the investment.

Other options, such as dividend payments or selling shares directly to the public, are less common in private equity contexts. Private equity portfolio companies typically do not pay dividends until they are sold or go public, and selling shares directly to the public isn't feasible for private equity firms, which typically do not hold public equity. Indefinitely holding a portfolio is contrary to the private equity model, which aims for eventual liquidity events to provide returns on investments made.