Private equity (PE) is a form of financing where money, or capital, is invested into a company. Typically, PE investments are made into mature businesses in traditional industries in exchange for equity, or ownership stake. PE is a major subset of a larger, more complex piece of the financial landscape known as the private markets.

PE is an alternative asset class alongside real estate, venture capital, distressed securities, and more. Alternative asset classes are considered less traditional equity investments, which means they are not as easily accessed as stocks and bonds in the public markets. We dedicated an entire article outlining the difference between the public and private sectors.

Private equity raises funds from institutional investors and wealthy individuals to invest in various assets. PEs invest in stressed assets, in leveraged buyouts of companies with the intention of solidifying its balance sheet or taking it to IPO. PEs also invest in REITs, funding in real estate, and also in Venture Capital funds.

Private equity offers several advantages to companies and startups.

1. PEs are favoured by firms because it allows them access to liquidity as an alternative to conventional financial mechanisms, such as high interest bank loans.

2. Certain forms of private equity, such as venture capital, also finance ideas and early stage companies/startups.

3. In the case of companies that are delisted, private equity financing can help such firms attempt unusual growth strategies away from the eyes of markets, as these companies don't have the constant pressure of publishing their quarterly earnings.