Private Equity is an asset class describing investments in privately held (as opposed to publicly traded) companies. Private Equity investments are very illiquid; investment commitments have typical durations of 7 – 10 years.

Private Equity firms receive their investment capital from Limited Partners (LPs). LPs usually consist of pension funds, foundations, and endowments which have large amounts of capital to invest. Private Equity is generally part of an LP's overall investment strategy that may include real estate, bonds, and publicly traded company stock.

The goal of every Private Equity firm is to generate a higher-than-market rate of return for its investors. The S&P500 is a typical benchmark against which returns are measured. The Private Equity industry generates returns by investing in the stock of private companies and subsequently generating a capital gain when the company is sold or becomes publicly traded.

A Private Equity firm typically has one or more funds that it manages. Each fund will have a stated investment strategy that describes aspects of investments it prefers. The investment strategy may include:

• Industries
• Geography
• Stage of deals, e.g., pre-revenue or post-revenue, growing or mature
• Size of total investment

Each fund has a General Partner (GP). The general partner is responsible for:

• Selecting the best investments or portfolio companies for a fund
• Working with the management of these portfolio companies to increase the value of the initial investment
• Developing a strategy for the fund to exit the investment within a given time frame

Private Equity falls into two broad groups: venture capital and other private equity.