Private equity refers to capital investment in private companies that are not publicly traded on a stock exchange. Private equity firms raise funds from institutional investors and use that money to invest in and acquire private companies, with the goal of improving performance and eventually selling the company or taking it public for a profit. Private equity enables investors to access higher potential returns than public markets, but also comes with higher risk as the investments are illiquid and long-term. Private equity firms typically target more mature companies for leveraged buyouts, growth capital, or turnarounds.