Private equity is an extremely complex subject to those unfamiliar with the concept. Leveraged buy-out (LBO) firms are private equity funds that seek to acquire controlling equity stakes in companies and usually insist that company management also hold a significant stake in the company so that their interests are aligned with the private equity investor's interest. LBO firm investments are long term, often many years.

Hedge funds may invest in debt or equity, could invest in a project or business, and usually have much shorter investment horizons than LBO funds. They also may tolerate greater risks than LBO funds and expect greater upside potential.

Private equity funds almost always have much more involvement in the supervision of the operation of their portfolio companies than the directors or shareholders of public companies or commercial lending institutions. They see themselves as "smart money" and spend many hours learning about and understanding the businesses in which they invest.

Oil & Gas Financial Journal has listed below a small but representative sampling of energy-specific firms that invest in the oil and gas industry. It is by no means a complete listing, which would be prohibitive from publishing here because of its length, but includes most of the larger firms and a few smaller ones.

In his article in this issue (see page 28), Cameron Smith of The Rodman Energy Group notes there has been a sharp drop-off in private equity investments this year, especially investments in new portfolio companies. This is unfortunate for the oil and gas industry because 90% of petroleum produced in North America is from independent producers, many of them private companies that rely at least in part on equity investment in order to grow.

Every private equity firm has its own comfort zone. Some concentrate on upstream investment, others on midstream companies, and still others on the oil service sector and new technology. Many diversify their investments and even include renewable energy companies.

One common denominator that all private equity funds want is an experienced management team with a proven track record of success.

Click here to download the pdf of the Leading private equity providers to oil & gas industry (alpha order)

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Private equity investments crucial to energy industry

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