What is Private Equity? What are Hedge Funds?

Whatever they are, their supporters spend a lot of money on candidates to Congress. 

- Open Secrets: Private Equity and Investment Firms.


- Private Equity. 

Private equity (PE) typically refers to investment funds, generally organized as limited partnerships, that buy and restructure companies. More formally, private equity is a type of equity and one of the asset classes consisting of equity securities and debt in operating companies that are not publicly traded on a stock exchange.

A private-equity investment will generally be made by a private-equity firm, a venture capital firm or an angel investor. Each of these categories of investors has its own set of goals, preferences and investment strategies; however, all provide working capital to a target company to nurture expansion, new-product development, or restructuring of the company's operations, management, or ownership.

Private equity is also often grouped into a broader category called "private capital", generally used to describe capital supporting any long-term, illiquid investment strategy.

Bloomberg Businessweek has called "private equity" a rebranding of leveraged-buyout firms after the 1980s.


- Hedge Funds.

A hedge fund is a pooled investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio-construction, and risk management techniques in an attempt to improve performance, such as short selling, leverage, and derivatives. Financial regulators generally restrict hedge fund marketing to institutional investors, high net worth individuals, and accredited investors.

Hedge funds are considered alternative investments. Their ability to use leverage and more complex investment techniques distinguishes them from regulated investment funds available to the retail market, commonly known as mutual funds and ETFs. They are also considered distinct from private equity funds and other similar closed-end funds as hedge funds generally invest in relatively liquid assets and are usually open-ended. This means they typically allow investors to invest and withdraw capital periodically based on the fund's net asset value, whereas private-equity funds generally invest in illiquid assets and only return capital after a number of years. However, other than a fund's regulatory status, there are no formal or fixed definitions of fund types, and so there are different views of what can constitute a "hedge fund."

Although hedge funds are not subject to the many restrictions applicable to regulated funds, regulations were passed in the United States and Europe following the financial crisis of 2007–2008 with the intention of increasing government oversight of hedge funds and eliminating certain regulatory gaps.