Private equity is an investment in businesses that are not traded on public exchanges, usually through a fund that pools investors’ money. Funds may buy control of an established company, invest in a growing business, or take a public company private. Direct fund access is generally restricted and long term; publicly traded business development companies (BDCs) offer retail investors a different, exchange-traded exposure to private companies.
How private equity works
A private equity firm’s adviser manages a fund that pools commitments from investors. The fund may call committed money over time as it makes investments. Some funds take control of operating businesses and work with management to try to increase their value; others make minority investments in growing companies or invest in public companies they intend to take private. Funds may use borrowing, which can increase both gains and losses.
Investors generally do not choose or manage the fund’s portfolio companies day to day. They should review the fund’s offering documents and agreements to understand its strategy, risks, fees, expenses, valuation approach, and potential conflicts. Examples of strategies describe what a fund might do; they are not promises of performance.
Examples of private equity strategies
| Strategy | Illustrative example | Key consideration |
|---|---|---|
| Buyout | A fund buys a controlling interest in an established services business and works with its management. | Control and borrowing may be used; leverage increases potential losses as well as gains. |
| Growth investment | A fund buys a minority interest in a growing company seeking capital to expand. | The fund may have less control, and results depend on the company’s ability to grow. |
| Take-private investment | A fund acquires a public company with the intention of taking it private. | The investment is in an illiquid private-fund structure, not ordinary exchange-traded shares. |
Ways individuals may get exposure
| Route | Access and liquidity | Important risks and differences |
|---|---|---|
| Direct private fund interest | Often limited to accredited investors or qualified clients and may require a high initial investment. Investor.gov describes a typical investment horizon of 10 or more years; withdrawals are limited, and years may pass before returns are realized. | Private funds are not themselves registered with the SEC and are not subject to regular public disclosure requirements. Review the documents, fees, expenses, valuation policies, and conflicts. |
| Private placement | A private fund interest or other security may be offered under an exemption such as Regulation D. Resale can be difficult. | Disclosure may be limited and an investor can lose the entire investment. The applicable exemption affects who may invest and how an offering can be marketed. |
| Publicly traded BDC shares | Retail investors can buy shares of a publicly traded business development company on an exchange. | A BDC is not a direct private-equity fund interest. It invests in debt and equity of smaller private companies and sometimes small public companies; its share price can be above or below net asset value (NAV), and shares can be volatile. |
| Indirect exposure | A pension plan or insurance company may invest some assets in private equity funds. | Whether you have exposure depends on the particular plan or policy. It is not the same as selecting a private fund yourself. |
U.S. private-placement eligibility basics
Some private fund interests are offered under Regulation D. Under Rule 506(b), an offering may include unlimited accredited investors and no more than 35 non-accredited investors during a 90-calendar-day period, subject to conditions; general solicitation is not permitted. Rule 506(c) permits general solicitation, but purchases must be limited to accredited investors and the issuer must take reasonable steps to verify that status. These are U.S. securities-law rules, not a guarantee that an offering is suitable or legitimate. The SEC’s Investor.gov Regulation D bulletin was updated September 21, 2026.
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The SEC’s 2021 accredited-investor bulletin lists several ways an individual may qualify. These include income exceeding $200,000 alone, or $300,000 with a spouse or spousal equivalent, in each of the prior two years with a reasonable expectation of the same income in the current year; net worth over $1 million individually or jointly with a spouse or spousal equivalent, excluding the primary residence; or a qualifying Series 7, 65, or 82 license in good standing. Other entity and trust categories exist. Check current SEC guidance and the specific offering documents to determine eligibility.
What to compare before considering an investment
- Eligibility and commitment: Check who may invest, any minimum investment, and whether you can meet capital calls.
- Liquidity: Private fund interests can tie up money for years and restrict withdrawals. BDC shares trade on an exchange, but their market price may differ from NAV.
- Disclosure and valuation: Private funds do not have regular public disclosure requirements. Private-company valuations involve judgment and may be uncertain.
- Fees and conflicts: Read the offering documents and agreements for management and incentive fees, other expenses, expense allocation, and adviser or affiliate relationships. BDCs also have operating expenses, advisory fees, and potentially incentive fees.
- Leverage and loss exposure: Funds may borrow, and BDC leverage can amplify gains and losses. Private placements can result in a total loss.
- Vehicle type: A private fund interest, a private-placement security, and an exchange-traded BDC share are different legal and economic instruments. Do not treat them as interchangeable.
Investor.gov describes BDC advisory fees generally as 1.5%–2% of gross assets annually, with certain incentive fees generally up to 20% of profits. These are general descriptions from the SEC’s 2024 guidance, not terms that apply to every BDC.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.FAQ
Can regular people invest in private equity?
Some people may qualify to invest in private fund interests, but direct access is often limited to accredited investors or qualified clients and can require a high initial investment. Retail investors can buy publicly traded BDC shares, which provide a different kind of exposure and carry different risks.
Is a BDC the same as a private equity fund?
No. A BDC is a company that invests in debt and equity of smaller private companies and sometimes small public companies. Publicly traded BDC shares trade on an exchange and may be priced above or below NAV; a direct private fund interest is a different, generally illiquid investment.
How long is money typically tied up in a private equity fund?
Investor.gov describes a typical private-equity investment horizon of 10 or more years. Withdrawals are limited, and several years may pass before an investor realizes a return.
Can I lose all the money I invest in a private placement?
Yes. The SEC warns that an investor could lose the entire investment. Private placements may have limited disclosure and may be difficult to resell.
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What should I check before investing?
Check eligibility, the investment documents, fees and expenses, conflicts of interest, valuation and disclosure practices, leverage, liquidity restrictions, and the possibility of loss. Do not assume an online advertisement establishes that an offering is suitable or legitimate.
Sources: SEC Investor.gov, “Private Equity Funds” (accessed October 4, 2026); SEC Investor.gov, “Regulation D Offerings” (updated September 21, 2026); SEC Office of Investor Education and Advocacy, “Accredited Investors – Updated Investor Bulletin” (2021); and SEC Investor.gov, “Business Development Companies” (2024).
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