what is private equity 
private equity describes investment partnerships that buy and manage companies before selling them private equity firms operate these investment funds on behalf of institutional and accredited investors private equity funds may acquire private companies or public ones in their entirety or invest in such buyouts as part of a consortium they typically do not hold stakes in companies that remain listed on a stock exchange private equity is often grouped with venture capital and hedge funds as an alternative investment investors in this asset class are usually required to commit significant capital for years which is why access to such investments is limited to institutions and individuals with high net worth 1understanding private equityin contrast with venture capital most private equity firms and funds invest in mature companies rather than startups they manage their portfolio companies to increase their worth or to extract value before exiting the investment years later the private equity industry has grown rapidly amid increased allocations to alternative investments and following private equity funds relatively strong returns since 2000 2 in 2022 private equity buyouts totaled 654 billion the second best performance in history 3 private equity investing tends to grow more lucrative and popular during periods when stock markets are riding high and interest rates are low and less so when those cyclical factors turn less favorable 456private equity firms raise client capital to launch private equity funds and operate them as general partners managing fund investments in exchange for fees and a share of profits above a preset minimum known as the hurdle rate 78image by sabrina jiang investopedia 2020private equity funds have a finite term of 10 to 12 years and the money invested in them isn t available for subsequent withdrawals the funds do typically start to distribute profits to their investors after a number of years 9 the average holding period for a private equity portfolio company was about 5 6 years in 2023 10several of the largest private equity firms are now publicly listed companies in the wake of the landmark initial public offering ipo by blackstone group inc bx in 2007 11 in addition to blackstone kkr co inc kkr carlyle group inc cg and apollo global management inc apo all have shares traded on u s exchanges a number of smaller private equity firms have also gone public via ipos primarily in europe 12mira norian investopediaprivate equity specialtiessome private equity firms and funds specialize in a particular category of private equity deals while venture capital is often listed as a subset of private equity its distinct function and skillset set it apart and have given rise to dedicated venture capital firms that dominate their sector other private equity specialties include private equity deal typesthe deals private equity firms make to buy and sell their portfolio companies can be divided into categories according to their circumstances the buyout remains a staple of private equity deals involving the acquisition of an entire company whether public closely held or privately owned private equity investors acquiring an underperforming public company will often seek to cut costs and may restructure its operations another type of private equity acquisition is the carve out in which private equity investors buy a division of a larger company typically a non core business put up for sale by its parent corporation examples include carlyle s acquisition of tyco fire security services korea co ltd from tyco international ltd in 2014 and francisco partners deal to acquire corporate training platform litmos from german software giant sap se sap announced in august 2022 1314 carve outs tend to fetch lower valuation multiples than other private equity acquisitions but can be more complex and riskier 1516in a secondary buyout a private equity firm buys a company from another private equity group rather than a listed company such deals were assumed to constitute a distress sale but have become more common amid increased specialization by private equity firms 1718 for instance one firm might buy a company to cut costs before selling it to another pe partnership seeking a platform for acquiring complementary businesses 19other exit strategies for a private equity investment include the sale of a portfolio company to one of its competitors as well as its ipo 20