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Private Equity

In short

Investing in companies not listed on public exchanges — illiquid, long-horizon

Private equity invests in companies that aren't publicly traded. Typically 10-year investments where firms buy companies, improve them, and sell them for a profit. High potential returns but money is locked up for years.

Private equity involves buying ownership stakes in private companies or taking public companies private. Strategies include leveraged buyouts (LBOs), growth equity, and distressed investing. Average PE fund returns have historically exceeded public markets but with significant illiquidity premium.

Related concepts

  • Venture Capital — Venture capital funds startups at early stages (Seed, Series A, B, C). Most startups fail, but one success like Google or Uber can return 1000x. VC is extremely illiquid — investments are tied up for 7-10 years.
  • Alternative Investments — Alternative investments are anything outside stocks, bonds, and cash — real estate, hedge funds, private equity, commodities, and crypto. They often have low correlation to traditional markets, improving portfolio diversification.
  • IPO (Initial Public Offering) — An IPO is when a private company sells shares to the public for the first time. It's how companies like Google, Amazon, and Apple 'went public.' IPO shares can pop on day one or drop — the first day price is notoriously unpredictable.
  • Hedge Fund — Hedge funds are investment pools that use complex strategies: short selling, leverage, derivatives. They're only available to wealthy accredited investors. Most charge '2 and 20' — 2% management fee plus 20% of profits.