In more detail

When it comes to a company's fundraising or an investor's exit, most of us are probably most familiar with conventional routes like initial public offerings (IPOs), debt and equity issuances (either by private companies or in capital markets) or trade sales to strategic acquirers. While such conventional routes remain ubiquitous and relevant to this day, the fundraising landscape has changed significantly in recent decades. Alternative fundraising avenues from sources such as private equity, venture capital, private credit and other investment funds like family offices and wealth funds – namely, private capital – have increasingly played much larger roles in the economy. These roles can be confusing, given the multifaceted relationships between private capital and the economy: private capital is becoming increasingly common as a funding source for startups and growth companies, while serving as alternative investments that promise higher returns for institutional investors like pension funds, sovereign wealth funds, and high-net-worth investors – ultimately the providers of capital. Additionally, from the perspective of business owners who wish to cash out, private capital offers a viable exit route – one that is less time-consuming and without the public scrutiny of an IPO or a takeover by a listed acquirer.

Our team at Baker McKenzie has been involved in all aspects of private capital, from fundraising to fund deployment in various settings. We aim to share some of our insights into this relatively little-known force behind much of the world's economy in our new Private Capital Newsletter series. We believe this will be valuable not only to seasoned industry veterans but also to those on the sidelines wishing to explore private capital opportunities in their ventures.¹

In this series introduction, we will take a quick look at what a typical private capital ecosystem looks like in today's market environment, which we hope will lay a good foundation for those unfamiliar with private capital.

The Ecosystem

The private capital ecosystem involves a range of participants and can become quite complex. As shown in the simplified chart below, the private capital ecosystem typically consists of two main aspects: fundraising and investing. In terms of fundraising, a typical private capital scheme pools capital from private investors, such as pension funds, usually through a limited partnership or a similar structure. On the investing side, how the funds are deployed varies greatly, depending on the strategy and specialty of each fund.

Illustrative structure chart

Investors who provide capital to a private capital fund are referred to as limited partners (LPs) due to their passive operational role in the legal structure while the sponsor or manager of the fund is referred to as the general partner (GP). The GP receives a management fee based on the fund's total capital commitment for its managerial role, along with a percentage of profits generated by the fund. This compensation structure aims to better align the interests of the GP and LPs. Capital is usually not injected into the fund upfront but rather is only "committed" and "called" at a later stage when investment opportunities arise. Private capital funds are typically categorized based on their investment strategies. For example, funds established to acquire entire or controlling stakes in target companies are called buyout funds (or leveraged buyout funds). Other participants in the ecosystem sometimes include banks (or non-bank lenders) where the fund's investments are partially financed by debt. Some LPs or other investors may also get to co-invest alongside the fund.

Stay tuned for our upcoming newsletters in the series as we explore some of the most salient topics in private capital in Thailand in greater detail. In the first installment of the series, we will look at what private capital fundraising looks like in Thailand, including common fundraising vehicles and basic fund governance, as well as things to consider in private equity buyouts and venture-type investments. We hope to touch on more specific investment strategies shown in the chart above in later installments.

1 For this newsletter series, we are interested in private capital raised and managed by professional investors (particularly private equity firms) as opposed to self-managed wealth units (e.g., certain sovereign wealth funds) dedicated to investments in private deals.

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Related content:

Thailand: Chapter 1 - Private capital fundraising

Thailand: Chapter 2 - Private equity (PE) buyouts