Short definition: Private equity refers to investments in privately held companies or those not listed on a public stock exchange.
Explanation: Private equity firms typically raise capital from institutional investors or high-net-worth individuals and use it to acquire ownership stakes in private companies. They aim to increase the value of these companies through operational improvements, strategic changes, or financial restructuring, with the goal of eventually selling their stake at a profit.
Example: A private equity firm might acquire a struggling manufacturing company, streamline its operations, and improve its profitability before selling it to another company or taking it public through an IPO.
Additional information (optional): Private equity investments are typically illiquid and involve a higher degree of risk compared to publicly traded stocks. However, they can also offer the potential for higher returns. Private equity firms often focus on specific industries or sectors and employ a variety of investment strategies, such as leveraged buyouts, growth capital investments, and venture capital investments.