Private equity is a broad category that refers to capital investment made into private companies, or those not listed on a public exchange,
There are several subsets of private equity, including:
- Venture capital, which focuses on startup and early-stage ventures
- Growth capital, which helps more mature companies expand or restructure
- Buyouts, when a company or one of its divisions is purchased outright
An important part of private equity is the relationship between the investing firm and the company receiving capital. Private equity companies often provide more than capital to the firms they invest in; they also provide benefits like industry expertise, talent sourcing assistance, and mentorship to founders.
Private debt refers to investments that are not financed by banks (i.e., a bank loan) or traded on an open market. The “private” part of the term is important—it refers to the investment instrument itself, rather than the borrower of the debt, as both public and private companies can borrow via private debt.
Private debt is leveraged when companies need additional capital to grow their businesses. The companies that issue the capital are called private debt funds, and they typically make money in two ways: through interest payments and the repayment of the initial loan.
Hedge funds are investment funds that trade relatively liquid assets and employ various investing strategies with the goal of earning a high return on their investment. Hedge fund managers can specialize in a variety of skills to execute their strategies, such as long-short equity, market neutral, volatility arbitrage, and quantitative strategies.
Hedge funds are exclusive, available only to institutional investors, such as endowments, pension funds, and mutual funds, and high-net-worth individuals.