Private Equity

Private equity is investment in companies that are not listed on a public exchange — buyouts of mature businesses, venture capital for startups, growth equity for companies between the two. The defining differences from public-market investing are not the underlying businesses (companies look much the same on either side of the listing) but the access restrictions and the liquidity terms.

Access is gated by two distinct definitions that live in two different statutes, and conflating them is the most common error in this area. An accredited investor is defined in Regulation D ( 17 CFR § 230.501(a)): a natural person with net worth above $1 million excluding the primary residence, or income above $200,000 ($300,000 with a spouse) in each of the two most recent years. Since 2020 the definition also reaches holders of a Series 7, 65, or 82 license and “knowledgeable employees” of the fund itself — a credential route that lets a competent professional in without the balance sheet. A qualified purchaser is a different and higher bar, set by the Investment Company Act ( 15 U.S.C. § 80a-2(a)(51)): a natural person owning at least $5 million in investments — not net worth, and specifically not counting your house or your business. Funds relying on the § 3(c)(7) exemption may admit only qualified purchasers, which is why the best funds are closed to merely accredited investors.

Fund minimums typically run from $250,000 to several million per commitment, and capital is locked up for 7–10 years — you commit, get called over years one through four or five, and receive distributions starting around year five through wind-down.

Private equity covers a wide spectrum of strategies, fund economics (the 2-and-20 fee structure and its variants), tax treatment of carried interest, and the realistic question of whether the median fund justifies its fees. All of that is in chapter “Alternative Investments”.