Private Equity Fund

A private equity (PE) fund is a collective investment vehicle that raises capital from institutional investors (LPs): pension funds, insurance companies, family offices and sovereign wealth funds. It invests in non-listed companies with the objective of creating value and realising it via an exit (trade sale, IPO or secondary LBO) after a holding period of 4 to 7 years, within a fund life of typically 10 years (a 5-year investment period followed by a 5-year harvest period).

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The standard legal structure is the Limited Partnership (LP): investors (Limited Partners) contribute capital and bear financial risk, while the fund manager (General Partner) makes investment decisions in exchange for a management fee (typically 1.5–2% of annual commitments) and carried interest (a share of profits, typically 20% above a hurdle rate of 8%, distributed after repayment of the capital invested by LPs).

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Private equity strategies span multiple stages: venture capital (early-stage startups), growth equity (high-growth SMEs), LBO (leveraged buyout of mature companies) and special situations (distressed M&A, turnaround), each with distinct risk/return profiles, valuation approaches and investor bases. In the Franco-Swiss market, mid-market funds (CHF 30–300 million AUM) play a central role in business transfers and SME growth financing.

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Example: a mid-market PE fund raises CHF 120 million from 12 institutional Franco-Swiss LPs. It invests in 8 SMEs over 4 years, with unit tickets of CHF 8–18 million. After a 5-year holding period, the fund's net IRR stands at 19.2%: above the 8% hurdle rate, triggering the GP's carried interest. A larger Swiss buyout fund raising CHF 300.0 million from pension funds, family offices and fund-of-funds targets 8 to 10 Swiss and French SME acquisitions with enterprise values of CHF 20–80 million, aiming for a 15% net IRR and a 2.0x money multiple for its LPs.

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At Hectelion, we support private equity funds in their financial due diligence, target valuation and transaction structuring mandates.