Chartered Alternative Investment Analyst Association (CAIA) Exam 2025 – 400 Free Practice Questions to Pass the Exam

Private equity typically involves investment in private companies and the buyout of public companies. This form of investment focuses on acquiring equity ownership in firms that are not listed on public exchanges, enabling investors to potentially exercise greater control over the firms and implement changes to drive performance and profitability. Private equity firms often aim to acquire these companies, improve their operations, and later sell them for a profit, either through private sales or by taking them public again.

The nature of private equity investments allows for more direct involvement in the management of the portfolio companies as they are not subject to the same regulatory scrutiny and market pressures as publicly traded entities. Additionally, this category can involve a range of investment strategies, including venture capital, buyouts, and distressed asset investing, all centered around the goal of generating significant returns over a longer investment horizon.

Other options do not accurately reflect the nature of private equity. For instance, investments in publicly traded companies or trading stocks and bonds pertain to public equity markets and not private equity. Similarly, while private equity can include real estate investments, the assertion that it invests only in real estate developments is overly restrictive and does not encompass the broader spectrum of private equity activities.