Private Equity
Investment capital deployed in companies that are not publicly traded, typically through buyouts, growth investments, or venture capital.
What is Private Equity?
Private equity (PE) refers to investment capital provided to companies that are not listed on public stock exchanges. Private equity firms raise capital from institutional investors (pension funds, endowments, sovereign wealth funds) and high-net-worth individuals into limited partnership funds, then deploy that capital by acquiring, investing in, and ultimately selling companies to generate returns. Major PE strategies include leveraged buyouts (LBOs) — acquiring mature companies using significant debt — growth equity investing in profitable mid-stage companies, and venture capital (sometimes separately categorized). PE investments are illiquid, typically with 5–10 year fund lifecycles. Target returns are usually 15–25% IRR annually, reflecting the illiquidity premium over public markets.
Example
A private equity firm raises a $3 billion fund. It acquires a manufacturing company for $600 million using $200M equity and $400M debt (LBO). Over five years, the PE firm cuts costs, expands revenue, and pays down debt. When they sell the company for $1.2 billion, the equity portion has grown from $200M to $800M — a 4x multiple on invested capital. After fees, limited partners earn 25% IRR.
Source: CFA Institute — Private Equity