Private equity
Also called: PE · Topic: Financial Markets, Instruments, Insurance and Pensions · NCERT: Beyond NCERT
Meaning
Private equity (PE) means investing in companies that are not listed on a stock exchange, or buying out listed companies. A PE fund takes a large stake and works to restructure and improve the business. After some years it exits at a profit, usually through an IPO (the company's first sale of shares to the public) or a strategic sale to another company. In India, PE funds are Category II Alternative Investment Funds (AIFs) under SEBI's 2012 regulations.
Example
A PE fund buys a large stake in an unlisted, family-run hospital chain. Over five or six years it brings in professional managers, cuts costs and opens new branches. It then sells its stake when the chain lists through an IPO.
Don't confuse with
- Venture capital (VC): funds early-stage, high-risk start-ups, often before they earn profits, in rounds (seed → Series A → B → C). PE usually backs more mature businesses or buys out whole companies.
Related concepts
- Mutual fund
- Net Asset Value
- Systematic Investment Plan
- Index fund
- Exchange-Traded Fund
- Gold ETF
- Fund of funds
- Real Estate Investment Trust
- Infrastructure Investment Trust
- Domestic institutional investors