Definition: A company that raises money from institutional investors and then invests these funds into private companies. 

Tips: Private equity groups raise pools of capital from limited partners, such as pension funds and insurance companies. These investments are then structured into a fund with a typical life of 10 years. The private equity group then invests this money on their investees’/limited partners’ behalf in an attempt to maximize their return. The private equity group then purchases privately held companies with the goal to exit these investments in a three to five-year time frame. Private equity is technically “equity that is private”. Public equity is “equity that is publicly held or traded.” Because it is private, the returns on private equity are difficult to assess. Private equity groups are the largest/most common buyer of mid-sized companies.