Private Equity is risk bearing capital of investors, instead of public capital, that is invested in listed organizations. Private Equity firms often take a majority of the shares in an organization, which means that they have an active participation in that company. The objective is to make the organization more efficient and to improve its performance, in order to sell the organization in 5 years for a profit, or to get it listed.
Private Equity can be divided into Venture Capital and Leveraged Buy-Out. Venture Capital relates to investment in young companies and start-ups that aren’t mature enough to be listed. A Leveraged Buy-Out means that a company is acquired and this acquisition is financed with debt. The company gets delisted and continues via private funding.
The difference between Private Equity and Hedge Funds is that Private Equity funds are focused on the long term and are directly involved in the business of the organization in which they invest.