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Private Equity Research: Definition, Benefits, and Limitations

folders with a lot of research documents
Andrius Ziuznys

Andrius Ziuznys

January 28, 2022

What is private equity?

Private equity is an alternative investment option that is not publicly listed and consists of funds directly invested in private companies. Alternative investments refer to the financial assets that do not have one single investment category as opposed to conventional investments such as bonds, stocks, or cash.

Private equity firms also participate in the buyouts of public companies, turning them private. The companies that a private equity firm holds ownership or interest over are defined as portfolio companies.

Private equity funds usually have Limited Partners who own the vast majority (99%) of shares and General Partners who own the remaining 1%. Limited Partners (LPs) have limited liability, meaning they are not risking their private assets in case the fund fails. On the other hand, General Partners have full liability and risk losing all of their invested assets and may be personally liable for the accumulated debts of the firm.

Private equity investments essentially come from institutions (such as pension funds and insurance companies) and accredited investors that can devote large amounts of money for prolonged periods of time.

What is private equity research?

Private equity research mostly consists of due diligence, financial modeling, and valuation procedures.

How is it conducted?

A private equity analyst must research a handful of data from various sources to come up with accurate and relevant insights in regards to the researched entity.

  • Due diligence is performed to investigate and confirm certain facts before engaging in a transaction with another party. For example, due diligence for stocks is conducted by analyzing the capitalization of the business, monitoring revenue, assessing competition, researching and comparing certain ratios (P/E, PEGs, and P/S), researching the management, checking the balance sheet, examining historical stock prices, among some others. It helps eliminate risks regarding investment decisions. It can be done using public information and allows making data-backed decisions.
  • Financial modeling relies on historical data and allows to forecast a company's future success or failure. You can select relevant factors upon which you want to start modeling the company's trends and perform trend analysis to anticipate future outcomes of the business.
  • Valuation is a process used to evaluate the worth of a specific asset or a business. Attributing value to a business can be done by taking into account the management, capital structure, potential future outcomes, the market value of the business's products, and more.

Who does it?

Private equity research is usually performed by a private equity analyst who implements financial analysis and determines the value of investing in specific private companies.

Private equity analysts perform research of the companies and businesses that are of interest to investors. However, since private companies do not have a predefined determinant of their stock value, one of the most challenging tasks for the analysts is to accurately determine the value of the company and provide the investors with precise and necessary information.

The outcome

After the research is concluded, private equity firms know their possible new investment or acquisition opportunities and can act on them with a level of certainty. Now they know exactly what they need to know to decide whether a company fits their expectations. All the required data is verified and validated; therefore, it's a good time to approach. Without the research process, a lot of guesswork would be required and the investment decisions would be lacking information, which could result in a failed investment and a massive loss of money.

two people researching statistics

The benefits of private equity research

Private equity research offers a handful of benefits, some of which include:

  • New opportunities for PE firms to invest in. A private equity research analyst is able to uncover potential new investment opportunities. The extensive analysis provides both PE firms and investment companies with viable business options in case the PE fund decides not to invest in a certain business and passes it on to another investment company for a fee.
  • Understanding company competitiveness. By building a business model for each investigated business, you can gather insights into how competitive it is. You can compare revenue growth, headcount, technology stack, and more to arrive at certain conclusions about whether a company is worth investing in.
  • Managing investment risks. Sophisticated risk management involved in investment decisions can greatly impact fund performance and well-being.

The limitations of private equity research

Due diligence processes take a lot of time. Furthermore, you need access to massive amounts of data depending on the scope of analysis. Collecting the needed data on your own can be a daunting task.

However, there are multiple data providers out there that can help you with your data needs. One of which is Coresignal.

We offer sets of raw high-quality alternative data to help you speed up the research. For instance, our firmographic data allows you to filter relevant companies by industry, headcount, revenue, and more. You can segment the industries and focus only on those that are of interest to you.

The use of alternative data alleviates the investment research process significantly since you no longer need to manually collect information. Not only our data helps with that, but it also allows you to discover new companies of interest and enrich the data you currently have for more accurate data-driven decisions. You can leverage our firmographic data to save resources, close more deals, and improve the overall analytical process.


PDF sample

Free data sample

  • See the sample structure of our firmographic JSON record
  • Explore the main firmographic data points
  • Find out the definition of each data point

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In general, private equity research is a crucial component of a successful investment campaign. PE funds must be treated and handled with caution. Thorough research allows you to mitigate and manage unwanted risks and find the most appealing business options for you and your partners.

Frequently asked questions

What is private equity?

Private equity is a form of investment where the funds and investors go directly to private companies for investment or buyout purposes.

What does a private equity research analyst do?

PE analysts find optimal investment opportunities to maximize the ROI and increase overall profits by participating in extensive research processes.

How to become a private equity analyst?

First, a relevant degree from academic institutions is required. However, one of the most important aspects that play into the hiring process is prior experience in the investment banking sector.

How does private equity differ from venture capital?

Private equity firms invest high amounts of money in private companies or engage in the buyouts of public companies, turning them private. Venture capital mostly invests in startup companies that show potential.

How do private equity firms make money?

PE firms' earnings mostly consist of fees. For example, the payment for investment services, also known as carried interest is deducted from the investors' profits and distributed to the Partners of the PE firm. There are other types of fees as well, such as management fees and dividend recapitalizations.

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