Private Equity

Loading the player...

What is 'Private Equity'

Private equity is equity capital that is not quoted on a public exchange. Private equity consists of investors and funds that make investments directly into private companies or conduct buyouts of public companies that result in a delisting of public equity. Capital for private equity is raised from retail and institutional investors, and can be used to fund new technologies, expand working capital within an owned company, make acquisitions, or to strengthen a balance sheet.

The majority of private equity consists of institutional investors and accredited investors who can commit large sums of money for long periods of time. Private equity investments often demand long holding periods to allow for a turnaround of a distressed company or a liquidity event such as an IPO or sale to a public company.

BREAKING DOWN 'Private Equity'

The size of the private equity market has grown steadily since the 1970s. Private equity firms will sometimes pool funds together to take very large public companies private. Many private equity firms conduct what are known as leveraged buyouts (LBOs), where large amounts of debt are issued to fund a large purchase. Private equity firms will then try to improve the financial results and prospects of the company in the hope of reselling the company to another firm or cashing out via an IPO.

RELATED TERMS
  1. Repackaging

    When a private equity firm takes a public firm private by purchasing ...
  2. Going Private

    A transaction or a series of transactions that convert a publicly ...
  3. Privatization

    1. The transfer of ownership of property or businesses from a ...
  4. Club Deal

    A private equity buyout or the assumption of a controlling interest ...
  5. Reverse Leveraged Buyout

    The offering of shares to the public by a company that was taken ...
  6. Private Equity Real Estate

    A Definition of "Private Equity Real Estate" and how it applies ...
Related Articles
  1. Investing

    Should My Portfolio Include Private Equity?

    Private equity offers a lot of potential, but is it worth the risk?
  2. Managing Wealth

    How To Invest In Private Companies

    It can be tough to invest in a company that doesn't trade on an exchange, but there are also several advantages.
  3. Managing Wealth

    Private Equity Fundamentals

    Investopedia explains what private equity is through a concise video.
  4. Financial Advisor

    Is Private Equity the Right Move Now? (PSP, PEX)

    With equities extremely volatile, does it make sense to move to private equity?
  5. Managing Wealth

    How To Invest In Private Companies

    Owning a private firm means sharing more directly in the underlying firm’s profits.
  6. ETFs & Mutual Funds

    Private Equity A Trendsetter For Stocks

    In this article, we'll show you how private equity sets the trend for stocks everywhere.
  7. Trading

    Understanding the Accounting of Private Equity Funds

    Read about private equity accounting and how it is different than that of other investment vehicles. The nature of private equity makes a difference.
  8. Trading

    Private Equity's Returns Are Tempered By Its Risks (BX, KKR)

    Private equity firms adopt approaches to quickly hike up earnings and boost returns, but these investments come with big risks too.
  9. ETFs & Mutual Funds

    Top 3 Private Equity ETFs (PSP, PEX)

    Discover some of the best-performing private equity exchange-traded funds and how these ETFs can help investors diversify their portfolios.
  10. Investing

    Why Companies Stay Private

    Many private companies prefer to stay private and find alternate sources of capital. Find out what firms have to gain by eschewing the windfall from a flashy IPO.
RELATED FAQS
  1. Why are private equity investments usually reserved for rich people?

    Learn what investors without a high net worth can do to invest in private equity investments, and discover the benefits and ... Read Answer >>
  2. How does the risk profile of private equity investments compare to those of other ...

    Learn how the risk profile of private equity investment compares to other asset classes and the aspects investors should ... Read Answer >>
  3. What are the major differences between investment banking and private equity?

    Read about the major differences between investment banking and private equity, two iconic financial industries with mixed ... Read Answer >>
  4. How do returns on private equity investments compare to returns on other types of ...

    Learn how private equity performance compares with other alternative investment asset classes and traditional types of investment ... Read Answer >>
  5. Can mutual funds invest in private equity?

    Learn about the mutual funds that invest in private equity by buying shares of investment holdings firms that specialize ... Read Answer >>
  6. What is the difference between private equity and venture capital?

    Learn the differences between private equity and venture capital, especially in terms of how these types of firms invest ... Read Answer >>
Hot Definitions
  1. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  2. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  3. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  4. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
  5. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative to straightforward market capitalization. Enterprise value is ...
  6. Security

    A financial instrument that represents an ownership position in a publicly-traded corporation (stock), a creditor relationship ...
Trading Center