Funds & wrappers
Private equity
Funds that buy whole companies not listed on a public market, usually using substantial debt.
How it works
The model is to acquire a business, improve or restructure it, and sell it several years later. Capital is committed for many years and drawn down as deals are found.
Returns are quoted as internal rates of return on drawn capital, which is not directly comparable to a public market return on money invested throughout.
Where it misleads people
Valuations between deals are estimates by the manager, which makes reported volatility artificially low. Smooth quarterly marks are a reporting convention, not evidence of stability.
Related terms
- Mark to marketValuing a holding at the price it could be sold for today, rather than what was paid for it.
- Money-weighted returnThe return your actual money earned, counting when each contribution and withdrawal happened.
- Liquidity riskThe risk of not being able to sell when you want to, without accepting a bad price.
- LeverageUsing borrowed money to increase exposure beyond what your own capital would buy.
Mentioned in
More in Funds & wrappers
- Synthetic ETF
- Premium and discount
- Target-date fund
- Portfolio turnover
- Transaction costs
- Performance fee
- Active management
- Net asset value
All 25 Funds & wrappers terms · The full glossary, 433 terms
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.