Private Equity
Equity investment in companies not traded on public markets, typically held through a limited-partnership fund.
The exam most often makes you place a deal on the PE spectrum: a startup with little or no revenue is venture capital (equity-financed, early life-cycle), while a mature, cash-generative target acquired with heavy debt is a leveraged buyout — the tells are the company’s life-cycle stage and the use of leverage. A second favorite is the exit-route question — trade sale to a strategic buyer, secondary sale to another PE fund, IPO (usually the highest price), or recapitalization — and which one a manager picks given market conditions. A third pattern asks how PE creates value versus public equity: active ownership and control, not passive diversification.
The classic trap is confusing the fund with the firm/GP: carried interest is the GP’s profit share (~20%), not the fund’s return, and is paid only after return of capital and the preferred-return hurdle clear. Students also wrongly assume all PE is buyout — venture capital and growth equity are PE too. Memory hook: “private = patient capital” — locked up, illiquid, and judged at the finish line, not on interim marks.
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