Private equity firms typically invest in various classes of shares based on their investment objectives, risk tolerance, and desired level of control. We’ll now give an overview of common classes of shares that they might consider.

Ordinary shares 

• Ordinary shares represent ownership in a company and typically carry voting rights, which allow shareholders to participate in corporate decision-making (such as electing the board of directors).
• Holders of ordinary shares are entitled to dividends if the company distributes profits, although these dividends are typically discretionary.
• In the event of liquidation, ordinary shareholders are only entitled to recoup their investment once all debts (including money owed to creditors and employees) and holders of preference shares have been repaid.

Preference shares 

• Preference shares, as the name suggests, come with certain preferences over ordinary shares, usually regarding dividend payments and the receipt of proceeds in an insolvency or liquidation situation.
• Holders of preference shares typically receive fixed dividends in priority to the payment of any dividends to ordinary shareholders. These dividends may be cumulative (i.e. they accrue if unpaid) or non-cumulative.
• In the event of insolvency or liquidation, holders of preference shares rank behind creditors, but ahead of ordinary shareholders.
• However, preference shares often do not carry voting rights, or if they do, they may have limited or different voting rights compared to ordinary shares. They also don’t tend to entitle the holders to equity upside, meaning the holders won’t be able to sell their shares for a profit if the business increases in value. Given this lack of ownership and control, plus the guaranteed dividend payments, preference shares operate a little like debt in practice.
• Private equity firms may invest in preference shares to secure a steady income stream or to mitigate risk, especially in situations where they seek consistent returns rather than significant ownership or control. 

Convertible preference shares 

• Convertible preference shares give the holder the option to convert their preference shares into a predetermined number of ordinary shares after a specified period or under certain conditions.
• These shares provide the potential for capital appreciation if the company's value increases, as preference shareholders can convert their shares into ordinary shares at a predetermined conversion ratio (which can then be sold for a profit if the company’s value increases).
• Convertible preference shares often combine the income characteristics of preference shares with the potential for equity upside, making them attractive to private equity investors seeking both income and capital growth. 

PE firms may tailor their investment strategy in a particular target by choosing the most appropriate class of shares based on factors such as their desired level of ownership, dividend preferences, voting rights, and exit strategies. Each class of shares offers distinct rights and preferences, allowing investors to structure their investments to align with their specific objectives and risk profiles.