Private equity (PE) involves the acquisition of stock market listed or private companies, typically through funds managed by specialized firms, with the aim of increasing the companies’ value over a number of years before eventually selling them to realize returns for investors. PE rose to prominence in the 1980s, when high-profile leveraged buyouts, financed by the high-yield junk bonds pioneered by Michael Milken at investment bank Drexel Burnham Lambert, targeted multi-billion-dollar companies, such as RJR Nabisco, Federated Department Stores, and Beatrice Companies.
Today, PE has grown into a sizable asset class, with $3.3 trillion in worldwide assets under management as of 2022. Most foundations and university endowments (88%, according to a 2017 survey of 41 firms) are invested in private equity, as are many other institutional investors.
Yale University, long a pioneer of alternative asset class investment, currently allocates 17.5% of its endowment to private equity, and the Virginia Retirement System allocates even more (33%).
