Private equity has become one of the fastest-growing segments in alternative investments, with assets under management increasing from $744 billion in 2004 to $9.7 trillion as of December 2024, according to Preqin.
Private equity refers to investments made into private companies or assets that are not listed on public stock exchanges. Fund managers, known as general partners (GPs), create portfolios by selecting privately held companies and typically hold these investments for several years before seeking an exit through a sale or initial public offering (IPO).
There are three main strategies within private equity: buyout, growth equity, and venture capital. Buyouts involve acquiring controlling stakes in mature companies, usually using both cash and debt. Growth equity focuses on established businesses that are expanding quickly and often involves minority or majority stakes with less reliance on debt than buyouts. Venture capital targets early-stage companies with high growth potential, providing funding in exchange for minority ownership.
Traditionally, access to private equity was limited to institutional investors and family offices meeting specific wealth or income requirements. However, recent developments have expanded access for individual investors.
Opportunistic multi-manager strategies such as co-investments and secondary transactions offer diversification benefits and may provide enhanced returns or lower fees. Co-investments allow investors to invest alongside a GP in a specific company, sometimes at reduced fee levels. Secondary transactions involve buying existing interests from other investors, offering flexibility and potentially faster returns.
Private equity funds generally progress through three phases: portfolio construction (identifying investments), value creation (improving portfolio companies), and harvest (exiting investments and distributing profits).
Key factors for investors considering private equity include its illiquidity—funds often have a lifespan of about ten years without redemption options—and lower correlation to public markets, which can help diversify portfolios. Historically, private equity has delivered higher long-term returns compared to public equities. The asset class also provides access to a broader range of investment opportunities since most U.S. companies are privately held.
Investing in private equity involves management fees and performance-based carried interest for GPs. These structures aim to align the interests of fund managers with those of their investors.
Morgan Stanley Private Equity Solutions has operated since 1999 as a limited partner in private markets. The team manages globally diversified fund-of-funds programs and specialized mandates covering primary funds, co-investments, secondaries, venture capital, and impact investing strategies.
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