An Introduction to Private Equity Basics

The investment landscape is expanding beyond traditional stocks and bonds to include alternative investments, notably private equity (PE), which has seen substantial growth in assets under management. PE involves equity investments in private companies, with fund managers, or general partners (GPs), holding long-only positions for several years before seeking profitable exits.

The main strategies within PE are buyout, growth equity, and venture capital, each targeting different stages and ownership levels of companies. Historically, PE was accessible primarily to institutional investors, but recent innovations are broadening access to individual investors.

Notable strategies enhancing access include co-investments and secondary transactions, which offer benefits like diversification, fee mitigation, and enhanced transparency. Co-investments allow investors to partner directly with GPs in specific deals, often with lower fees, while secondary transactions provide liquidity and potentially discounted access to existing investments.

PE funds typically progress through phases of portfolio construction, value creation, and harvest, with investors needing to consider factors such as illiquidity, long investment horizons, and the qualitative characteristics that differentiate PE from other asset classes.