Private Equity can be defined as an investment resulting from a nonpublic entity. As per this definition, any person who possesses a single share of stock is called a private equity investor. However, private equity that we are talking is different and much bigger. These private equity investors not only invest in stocks but they also acquire whole companies.
In contemporary private equity, capital is raised from various sources including private investors like university endowment, pension funds, hedge funds, Wall Street investment banks and individuals. Then the private equity pool or fund managers place that capital to work.
However, private equity investments don't deal with only buying and selling companies. Now days, many private equity firms put money in debt, assisting a company recovery by crediting money to it and in exchange get an equity position or other type of returns.
Some of the private equity firms also provide funds for starting companies. Such type of investment is called venture capital firms; however big private equity management company will mostly comprise of venture capital activity along with acquisitions and debt purchases.
Mostly venture capitals investments are trades in return of equity in the private company. Firm hopes, it will turn into huge profits, should the startup go public or get sold.
Now days, private equity firms are mainly concerned to buying companies or venture therein. However, there are some private equity firms like Blackstone Group and Bain Capital who prefer some new routes. These firms are now pierce into other businesses like debt as well as real estate. Also, hedge funds have begun experiment in private equity as well as mostly through placements, but sporadically through their own, active efforts as well.