Investing & Markets

Primer on Private Equity

Private equity involves investing in private companies through active ownership strategies, offering higher historical returns but requiring significant capital commitments and long-term illiquidity.

1 / 7

What is Private Equity?

Equity investments in private companies with growth and exit potential
Active ownership approach with value-add initiatives like acquisitions and improvements
Access to 81% of companies with $100+ million revenue unavailable publicly
Requires specialized management and higher costs than public market investing

Historical Performance and Considerations

Some long-term studies have shown private equity outperforming public equities, though results vary widely by manager, vintage year, and time period
Any outperformance is often attributed to an illiquidity premium, active management, and access to private companies, and is not guaranteed
Provides diversification beyond public equities across multiple business sectors
Reported volatility can appear lower than public markets, but this largely reflects infrequent, smoothed valuations rather than lower underlying economic risk
Past performance does not guarantee future results, and private-equity returns are not directly comparable to public index returns

Public Markets Private Markets Direct Indexing

Try Our Free Tools

Compound Growth Visualizer Asset Class Explorer Risk Assessment

What is Private Equity?

Equity investments in private companies with growth and exit potential
Active ownership approach with value-add initiatives like acquisitions and improvements
Access to 81% of companies with $100+ million revenue unavailable publicly
Requires specialized management and higher costs than public market investing

Historical Performance and Considerations

Some long-term studies have shown private equity outperforming public equities, though results vary widely by manager, vintage year, and time period
Any outperformance is often attributed to an illiquidity premium, active management, and access to private companies, and is not guaranteed
Provides diversification beyond public equities across multiple business sectors
Reported volatility can appear lower than public markets, but this largely reflects infrequent, smoothed valuations rather than lower underlying economic risk
Past performance does not guarantee future results, and private-equity returns are not directly comparable to public index returns

Types of PE Strategies

Buyout strategies use leveraged buyouts combining equity investment with debt
Growth equity targets rapidly growing companies preparing for IPO or sale
Distressed investments focus on struggling companies near bankruptcy for turnaround
Strategies vary by geography, sector, company size, and concentration

Investment Structure Options

Traditional funds require 10+ year lockups with high investment minimums
Evergreen funds offer potential earlier liquidity with lower minimums required
Fund of funds provide diversification but charge two fee layers
Direct transactions offer lower fees but require high expertise and capital

Major Risks and Downsides

Illiquid investments locked up for 10+ years with difficult valuations
Leveraged strategies amplify both upside and downside investment potential
Higher interest rates may reduce future returns compared to historical performance
Complex tax filing requirements with K-1s and multiple state filings

Fee Structure Considerations

Typical 2% management fee plus 20% performance fee structure
Fund of funds add additional fee layer reducing net returns
PE must outperform public markets significantly to justify higher costs
Direct transactions generally offer lower or no fee alternatives

Key Takeaways

Only suitable for high net worth investors with long-term liquidity horizons
Offers diversification and higher return potential but requires accepting illiquidity risk
Choose investment structure based on expertise level, capital availability, and objectives
Consider fees, tax complexity, and correlation risks before committing capital

← Browse All Topics

Need Personalized Guidance?

Talk to a Wealth Advisor

These highlights cover the essentials. For advice tailored to your specific situation, schedule a complimentary consultation with our team.

Talk to an Advisor100% Fiduciary · Fee-Only · No Commissions

The information above is for educational purposes only and does not constitute investment advice, a recommendation, or a solicitation to buy or sell any security. Any historical figures are for illustration only, and past performance does not guarantee future results. Tax laws, regulations, and contribution limits change frequently, the details here may become outdated. Individual circumstances vary. Consult a qualified financial advisor, CPA, or attorney for guidance specific to your situation. Rubric Advisors is registered with the California DFPI; registration does not imply a certain level of skill or training.

Primer on Private Equity

What is Private Equity?

Historical Performance and Considerations

Types of PE Strategies

Investment Structure Options

Major Risks and Downsides

Fee Structure Considerations

Key Takeaways

What is Private Equity?

Historical Performance and Considerations

Types of PE Strategies

Investment Structure Options

Major Risks and Downsides

Fee Structure Considerations

Key Takeaways

Related Topics

Introduction to Alternative Investments

Investing in Venture Capital

Fund of Funds: Diversified Access to Alternative Investments

Primer on Private Equity

What is Private Equity?

Historical Performance and Considerations

Types of PE Strategies

Investment Structure Options

Major Risks and Downsides

Fee Structure Considerations

Key Takeaways

What is Private Equity?

Historical Performance and Considerations

Types of PE Strategies

Investment Structure Options

Major Risks and Downsides

Fee Structure Considerations

Key Takeaways

Related Topics

Introduction to Alternative Investments

Investing in Venture Capital

Fund of Funds: Diversified Access to Alternative Investments