Private capital is the umbrella term for investment, typically through funds, in assets not available on public markets.
Preqin defines private capital as private investments encompassing the following asset classes: private equity
, venture capital
, private debt
, real estate
, and natural resources
Interests in these assets or groups of assets are typically arranged as limited partnerships with investors referred to as LPs. General Partners, or GPs, act as the investment manager, calling and deploying capital from the LPs.
Click through the images below to read definitions of each asset class.
The various asset classes that now comprise private capital originally emerged as an offshoot of private equity. While private equity as an asset class has a relatively long history (discussed in detail in Lesson 4
), the industry only became mainstream in the past three decades, after a boom in leveraged buyouts in the 1980s. As private equity investments became more prevalent, new categories of private investment also emerged, with a growing number of private equity funds targeting opportunities in real estate, infrastructure, and – most notably since the Global Financial Crisis (GFC) in 2008 – debt. Over time these categories of investment have institutionalized to become independent asset classes in their own right.
As discussed in Lesson 1: What Are Alternative Assets?
compared to public markets, private capital fund managers typically take a more active role in the management of the companies and assets in which they invest. They will often contribute to business strategy and can play a part in directly managing assets. The nature, size, and structure of investments in private capital can vary significantly, but generally funds are seeking to create value or support growth of the companies and assets in which they invest. The intention is to secure strong returns on behalf of their investors over a pre-determined lifetime.