Compared to a retail investor that may invest $15,000 in Coca Cola stock for his retirement account and expect to receive an income stream in the future from dividends and long-term appreciation of the stock’s value, a private equity investor takes a different approach. This retail investor can expect to make a reasonable return that will potentially beat the stock market average; however, this investor will be taking a passive role over the long-term.
A private equity investor, on the other hand, may decide to buy Coca Cola and add value as an active investor. In other words, the private equity firm will use its industry and business experience, along with other tactics, to add additional value to its investment. Ways private equity firms add value to an investment include industry expertise, wealth of experience, deep operating skill sets and large global networks of affiliated partners and industry experts. A private equity firm could also partner with management of its portfolio company and remain deeply involved in the company’s day-to-day operations. Management teams can draw strategic, financial and operational guidance from the private equity firm.