What do Legoland, the Hilton Hotel and Ancestry.com have in common?

Well, they're all owned by the same company — Blackstone, the biggest private equity firm in the world.

Private equity is one of the most powerful forces in finance, yet most people don't fully understand how it works.
You see, any kind of company needs money to grow fast. And there are 2 ways for them to get that money:

First, they could sell shares to the public. That's you and me.
Second, they could sell pieces of the company to private investors. That's private equity.

And there's more to this.
When a private equity firm buys a company, they've got no intention of holding on to it and pocketing the profits.
Instead, they buy it with the intention to sell it as soon as it makes sense.

So what exactly is private equity?

Where did it come from and how are people getting so rich from it?

Welcome to Cashwisdom.blog, the place where future billionaires come to get inspired.

The 4 Key Steps of Private Equity

Private equity is a way for big investors to buy companies, make them better and sell them for a profit.
And these firms work with 4 key steps:

Step 1: Raise money from outside investors and put it into a special fund.
Step 2: Use that fund to buy companies.
Step 3: Make the companies profitable. Once they own the company, they'll go in and restructure it to increase profits.
They might bring in new leadership, lay off workers, open up new locations, or improve marketing and branding.
Sometimes these changes lead to huge success stories — and sometimes they backfire.
Step 4: Sell them for a profit.

After 5 or 10 years, the firm sells the company in one of 3 ways:

Through an IPO (becomes publicly traded again)
Sell it to another company
Sell it to another private equity firm

If everything goes as planned, they sell it for much more than what they paid and the firm and its investors make a massive profit.

The Origins of Private Equity

Private equity has been shaping all industries for over a century. But it didn’t start with this 4-step strategy.

In the early 1900s, tycoons like JP Morgan, the Rockefellers, and the Vanderbilts made deals by buying companies with investor money.
But they didn’t flip these companies. Instead, they:

Bought multiple companies in the same industry
Merged them into massive corporations
Used that to build empires — just like Monopoly strategy: same color, then houses, then hotel

Back then, empire building took much longer.

The Game Changes After World War 2

With the booming economy and return of thousands of veterans, investors saw golden opportunities.

In 1946, Harvard professor George DeRoy created ARDC (American Research and Development Corporation) — the first real venture capital firm.
His biggest bet:

A $70,000 investment in Digital Equipment Corporation (DEC)

When DEC went public in 1968, that $70,000 turned into $355 million.
DeRoy proved private investors could back innovative companies before they made it big.
He set the stage for venture capital.

Private Equity in the 1980s and Beyond

By the 1980s, private equity evolved again:
From betting on new ideas → to taking over existing companies and making them profitable.

In the 1990s and 2000s, the game expanded. It wasn’t just billionaires anymore — now:

Pension funds
University endowments
Governments

All started investing in private equity.

After the 2008 financial crisis, firms shifted from just cutting costs to improving operations, leadership, and tech.

By the 2010s, private equity became stronger than ever.
Today, firms like Blackstone, Carlyle, and Apollo manage trillions of dollars.

Different Types of Private Equity

Let’s break them down:

1. Leveraged Buyouts (LBOs)

J.P. Morgan’s 1901 acquisition of Carnegie Steel = first major LBO.

Modern LBOs use:

Money raised from investors
Debt borrowed against the target company's own assets

If the investment fails → lenders go after the company’s assets.
If it succeeds → massive returns.

Example: Blackstone & Hilton Hotels

Bought in 2007 for $26 billion
Appointed a new CEO
Shifted focus to franchising & branding
Injected $800M
Hilton IPO in 2013 at $21.50/share
Blackstone sold stake by 2018
Made $14 billion profit over 11 years

Example: Toys R Us

Bought in 2005 for $6.6 billion
Debt placed on Toys R Us
No cash injection
$470 million in fees taken by PE firms
Couldn’t invest in stores or e-commerce
Filed for bankruptcy in 2017
800 stores closed, thousands lost jobs

2. Growth Equity

Think of it as the reliable cousin of venture capital.

Invest in already profitable, fast-growing companies
Use little to no debt
Firms buy a minority stake
Help companies scale, not control them

Example: TikTok

Firms like General Atlantic and KKR invested in ByteDance
Helped expand globally

3. Venture Capital (VC)

High risk, high reward. Invest in early-stage startups.

Successes:

Sequoia: Airbnb, Google, WhatsApp
Andreessen Horowitz: Skype, Facebook, Twitter

Failures:

Sequoia invested $214M in FTX → Lost all
VC invested $700M in Theranos → Lost all

4. Distressed Investing

Buy struggling or bankrupt companies at discounts, try to turn them around.

Example: GameUK (UpCapita)

Bought and restructured
Grew market value 12x in 2 years

Example: Sharon Steel (Victor Posner)

Hostile takeover in 1969
Restructured too aggressively
Filed for bankruptcy in 1987

In 2024 alone, 110 companies backed by private equity filed for bankruptcy.

How Private Equity Makes People Rich

1. Deal Structure:

Only contribute ~10% of their own money
Not liable for debt — the company is
Interest on debt is tax deductible

2. Multiple Income Streams:

Management fees (2%)
Performance fees (20%)
Fees collected even if the deal struggles

3. Profitable Exits:

Sell at peak valuations
IPO, strategic buyer, or another PE firm
Can generate 10x+ returns on initial capital

Final Words

Private equity firms like Blackstone, KKR, and Apollo now own:

Hotels
Media companies
Tech companies

Basically, they own the world.

And they’re not slowing down.