CFA L1 / Alts / M3. Private Capital
Module 3 · Alternative Investments

Investments in Private Capital: Equity and Debt

EN: Private equity strategies and private debt categories.
VN: Chiến lược private equity và các loại private debt.

1. Private Equity Strategies Concept

  • Venture capital Stages: seed, early, expansion, late. High failure rate, J-curve returns.
  • Growth equity Minority stake in profitable, scaling companies.
  • LBO Leveraged buyout — acquire mature company with significant debt, improve operations, exit.
  • Distressed Buy debt of troubled companies; restructure or take control.

2. PE Exit Routes Concept

  • IPO Public listing — highest valuation potential.
  • Strategic sale Sell to corporate acquirer.
  • Secondary Sell to another PE fund.
  • MBO Sell back to existing management.
  • Recap Refinance with debt to pay sponsor dividend (no exit).

3. Private Debt Categories Concept

  • Direct lending Senior secured to mid-market firms.
  • Mezzanine Junior debt, often with equity warrants.
  • Distressed Buy beaten-down debt at deep discount.
  • Real-estate / infrastructure debt Project-finance type loans.
  • Venture debt Loans to VC-backed startups.

Practice problem Practice

Practice problem

A PE firm acquires a mature, cash-generative manufacturer using 70% debt financing, plans to improve margins, then sell in 5 years. Which strategy?

Show solution
Mature target, heavy debt, operational improvement = LBO.
Distressed: troubled target.
Venture: young/unprofitable.
Leveraged buyout (LBO)