An Introduction to Private Equity Basics

Most investors are familiar with traditional investments, which include cash and long-only positions in publicly traded stocks and bonds.

21.11.2025 | 05:00 Uhr

Alternative investments are comprised of more complex investments and include private strategies focused on illiquid holdings. Within the private alternatives universe, asset classes include private equity, private credit, real estate and infrastructure. Among these asset classes, private equity is one of the most rapidly growing with assets under management increasing more than 13x over the last two decades from $744 billion in 2004 to $9.7 trillion as of December 2024.¹

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What Is Private Equity?

Private equity (PE) can be defined as equity or equity-like investments made into private companies or assets (i.e., not publicly traded or listed on a stock exchange). In general, private equity fund managers, also known as general partners (GPs), are analogous to the managers of mutual funds, with a key difference being that these general partners construct portfolios of privately held, rather than publicly traded, companies or assets. Like mutual fund managers, and unlike hedge funds, private equity fund managers acquire long-only interests in underlying companies (portfolio companies). Unlike their public-oriented counterparts, however, PE GPs typically hold each of their portfolio companies for several years.

Following such multi-year hold periods, a GP will seek to exit its stake in a company or asset at a gain relative to its entry price (or valuation) through a negotiated sale or initial public offering (IPO). A GP seeks to deliver gains across a portfolio of such companies, making PE funds largely illiquid relative to mutual funds.

What Are the Key Private Equity Strategies?

There are three main strategies within private equity—buyout, growth equity, and venture capital. All encompass actively constructing and managing portfolios composed of equity interests in privately held companies that are each individually selected in exchange for either a capital investment into a company (primary) or as a payment to an existing equity holder (secondary). The strategies’ target investments vary, however, in terms of ownership levels, portfolio company stage, and/or financing approach.

IMPORTANT

All information provided has been prepared solely for informational and educational purposes and does not constitute an offer or a recommendation to buy or sell any particular security or to adopt any specific investment strategy.

This material has been prepared on the basis of publicly available information, internally developed data and other third-party sources believed to be reliable. However, no assurances are provided regarding the reliability of such information and the Firm has not sought to independently verify information taken from public and third-party sources.

Alternative investments are speculative and include a high degree of risk. Investors could lose all or a substantial amount of their investment. Alternative investments are suitable only for long-term investors willing to forego liquidity and put capital at risk for an indefinite period of time. Alternative investments are typically highly illiquid—there is no secondary market for private funds, and there may be restrictions on redemptions or assigning or otherwise transferring investments into private funds. Alternative investment funds often engage in leverage and other speculative practices that may increase volatility and risk of loss. Alternative investments typically have higher fees and expenses than other investment vehicles, and such fees and expenses will lower returns achieved by investors.

This material is a general communication, which is not impartial, and all information provided has been prepared solely for informational and educational purposes and does not constitute an offer or a recommendation to buy or sell any particular security or to adopt any specific investment strategy. The information herein has not been based on a consideration of any individual investor circumstances and is not investment advice, nor should it be construed in any way as tax, accounting, legal or regulatory advice.

Charts and graphs provided herein are for illustrative purposes only. Past performance is no guarantee of future results.

The whole or any part of this material may not be directly or indirectly reproduced, copied, modified, used to create a derivative work, performed, displayed, published, posted, licensed, framed, distributed or transmitted or any of its contents disclosed to third parties without the Firm’s express written consent. This material may not be linked to unless such hyperlink is for personal and non-commercial use. All information contained herein is proprietary and is protected under copyright and other applicable law.

The statements above reflect the opinions and views of Morgan Stanley Investment Management as of the date hereof and not as of any future date and will not be updated or supplemented. All forecasts are speculative, subject to change at any time and may not come to pass due to economic and market conditions.

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