How to Invest in Private Equity

There are two main ways to invest in private equity. The first, and most common, is to invest through a private equity firm. However, this is restricted to accredited investors who are wealthy, experienced or both. The second and most accessible way is to invest in ETFs and other funds that track the performance of private equity firms and related investments. Whatever path you choose, there are several factors to consider when determining how to invest in private equity.

Consider working with a trusted financial advisor to create a comprehensive financial plan for you and your family.

What Is Private Equity?

Private equity is a form of direct investment in companies.¹ It exists outside of the stock market and public equity markets. This means that private equity assets are not publicly traded, hence the name. Instead, private equity firms make individual deals with the companies in which they invest.

There are several different ways that private equity can work. In most cases, however, a firm will make one of three main types of investments.

Startup funding. When you invest in a startup, the private equity firm will directly invest in a new or emerging company in exchange for ownership or a stake in future profits.
Venture capital. With venture capital, the private equity firm will directly invest in an existing company. This provides the company with additional funding in exchange for ownership or a stake in future profits.
Acquisitions and leveraged buyouts. With acquisitions and leveraged buyouts, the private equity firm will purchase an existing company. The goal will be to make changes to this company and then resell it, either whole or in parts, for more than it was worth at the time of acquisition.

Private Equity Examples

Say you invest $10 million in a private equity firm and express an interest in technology startups. The firm would pool your money along with its other investors in the tech startup portfolio and seek relevant market opportunities.

Now, say that the private equity firm finds XYZ App, a startup company looking to launch the next big app. The firm might provide XYZ App with $50 million in startup funding in exchange for a 10% stake in the company.

If the app succeeds, that 10% will be worth more money. This will increase the value of the investment portfolio, and you will receive returns based on your proportional share in that portfolio.

What makes this transaction different from buying stocks is twofold. First, our app company was not publicly traded. This firm did not trade stocks on a secondary market like the NASDAQ or NYSE.

Second, the private equity firm reached an individual deal with the company to fund it in exchange for a share of ownership. Unlike with publicly traded stocks, where investors chiefly trade among themselves, the funds went directly into the business.

How to Invest in Private Equity

There are two main ways to invest in private equity: direct investments and ETFs.

Direct Investment in Private Equity

Direct investment in private equity means that you seek out a private equity firm and invest your money with them.

Per our example above, this is structured the same as investing in any other fund-based asset. You buy shares of a private equity firm’s portfolios based on their options, your interests and your risk tolerance.

The firm will then pool your money with the rest of the portfolio and use that capital to make investments. The portfolio will generate returns based on the performance of its underlying investments. You will receive a percentage of those returns based on your share in the portfolio.

The main difference is that, with private equity, the fund invests directly in other companies rather than publicly traded assets. However, keep in mind that in an acquisition, a private equity fund may purchase public shares of the target company’s stock.

How to Make a Direct Investment in Private Equity

The rewards of private equity can be high; for example, imagine getting in on the ground floor of Facebook. However, the risks are equally high, as in the case of Friendster.

As a result, direct investment in private equity is restricted to accredited investors.² These investors generally have over $1 million in assets or a minimum household income of $200,000 for a single person and $300,000 for a married couple.

In addition, most firms require very high initial investments. Private equity firms often require a minimum investment of between $5 million and $25 million up front.

If you qualify as an accredited investor and have the capital, the next step is to find private equity firms that match your interests. A financial advisor is a useful resource for this. Major firms include The Carlyle Group, Blackstone and CVC Capital Partners.

If you have an existing broker relationship, consult with them for recommendations. You’re looking for a firm that aligns with your investment categories and risk management.

ETF Investment in Private Equity

Most investors will be legally disqualified from investing in private equity directly; many are already disqualified by the high capital requirements of this field. However, there are many exchange-traded funds (ETFs) built to track the performance of private equity firms.

They can do this in several ways.

An ETF might invest in companies that themselves invest in private equity firms.
It might invest in companies funded or acquired by private equity firms.
It may directly invest in private equity firms themselves.

Regardless of the underlying structure, an ETF attempts to track the performance of private equity firms. The goal is to give you exposure to this market without the high entry requirements of direct investment. It is also unlikely that an ETF could deliver the same kind of high returns as a direct investment.

Benefits and Risks of Private Equity

Private equity appeals to many investors because of its potential for high returns, access to unique opportunities and ability to diversify an investment portfolio beyond public markets. However, these advantages come with significant trade-offs, including illiquidity, long holding periods, high fees and the possibility of losing your entire investment.

When deciding whether this investment strategy aligns with your financial goals and risk tolerance, it’s important to fully understand both the pros and cons.

Benefits	Risks
Potential for outsized returns – Private equity investments can deliver returns higher than those of traditional public market assets.	Illiquidity – Funds are often locked up for 7–10 years with no access to your capital during that time.
Diversification from public markets – These investments move independently of stock market trends, offering portfolio diversification.	Long investment horizon – Returns often take many years to materialize, requiring patience and a long-term mindset.
Access to unique opportunities – Investors can participate in early-stage companies, turnarounds or niche sectors not available on stock exchanges.	High fees – Management fees and carried interest can significantly reduce net returns.
Active ownership and influence – Through the private equity firm, investors often have a say in management decisions and strategic changes.	Potential total loss of capital – Particularly when investing in startups or distressed companies, there is a real risk of losing your entire investment.

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How a Financial Advisor Can Help Create a Plan for Private Equity

Private equity becomes relevant when you are considering investments beyond traditional stocks and bonds and want exposure to privately held companies. You may be deciding whether private equity fits your long-term goals, whether you qualify for direct investment or whether indirect exposure through ETFs is more appropriate. These decisions often arise when your portfolio has grown or when you are looking to diversify beyond public markets.

Investing in private equity involves several layered decisions. You need to determine whether you meet accredited investor requirements, how much capital you can commit without affecting liquidity and how long you can leave funds invested. You also face choices between direct investments through private equity firms and indirect exposure through funds or ETFs, each with different risks, costs and return profiles.

A financial advisor can help you evaluate whether private equity aligns with your overall financial plan. This includes reviewing your cash flow needs, risk tolerance and time horizon, as well as how illiquid investments would affect your ability to respond to future expenses or opportunities. An advisor can also help clarify how private equity exposure compares to other growth-oriented strategies already in your portfolio.

Advisors also assist in assessing structure and access. If you qualify for direct investment, they can help you understand capital commitments, lockup periods, fee structures and diversification across funds or vintages. If you do not qualify or prefer flexibility, they can help you evaluate private equity ETFs or related funds and explain how those vehicles differ from direct ownership.

Questions to Ask a Financial Advisor

As you evaluate options, useful questions to ask your advisor include whether private equity income or returns are expected to be irregular, how long capital may be inaccessible and how losses would affect your broader plan. You may also want to ask how private equity investments are typically taxed, how performance is reported and how these investments behave during market downturns.

The value of advice in private equity planning often comes from managing complexity and timing. Private equity decisions are less reversible than public market trades and can affect your financial flexibility for years. An advisor helps you weigh growth potential against illiquidity and align private equity exposure with your goals. Then you can decide whether this strategy fits your investment plan now or at a later stage.

Bottom Line

There are two main options when it comes to how to invest in private equity.

Private equity is a form of investing in which firms directly invest in companies, such as through startup funding and venture capital. While direct investment in private equity is restricted to accredited investors, you can invest in publicly traded ETFs that give you exposure to this market. A financial advisor can help you determine if this is right for you.

Tips on Investing

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