Private Equity, commonly abbreviated as PE, refers to an asset class that involves direct investment in private companies, or involvement in buyouts of public companies, with the aim of making these companies private. The key distinction of private equity is that these investments are not listed on a public exchange.
Private equity investments are typically made by private equity firms, venture capital firms, or angel investors. Each of these categories of investor has its own set of goals, preferences, and investment strategies, but all provide working capital to a target company to nurture expansion, new product development, or restructuring of the company's operations, managerial hierarchy, or ownership structure.
A primary objective of private equity management is to significantly grow a smaller-sized firm that may not be fully developed or realized. They might do this through a variety of strategies like improving operational efficiency, driving business growth via new investments or acquisitions, or improving strategic planning.
These investments are generally considered to have a higher risk and higher potential return than other types of investment. The investment period can span years or even decades, but it typically ends with the private equity firm attempting to either divest their shares back to the company, transact it to another company, or present it to the public through an initial public offering (IPO).
