Private Equity (PE) Meaning. Definition

Private Equity (PE) in simple terms is a way of financing, where funds are invested in private companies that are not listed on the stock exchange.

A private equity fund has 2 kind of partners:
– Limited Partners (LP), who provide the capital and who typically own 99% of shares in a fund and enjoy a limited liability.
– General Partners (GP), who are in charge of executing and operating the investment, and who typically own 1% of shares, and have full liability.

LPs are institutional investors and accredited investors, who are required to provide substantial sums of money for extended time periods. The long period is needed in order to enable liquidity events such as an initial public offering (IPO) or a sale to a public company or even ensure a turnaround for distressed companies.

Private equity can invest in many different ways, like:
– Providing venture capital investment to startups.
– Leveraged-buyout where  PE fund buys majority control of an existing or mature firm.
– Growth capital refers to none controlling equity investments, in mature companies that are looking for capital to expand or restructure, enter new markets or finance a major acquisition.
– Distressed investments.
– Mezzanine capital.
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