How to invest in private equity

Key takeaways

• Private equity involves investing in companies that are not publicly traded, typically through pooled funds managed by professional investment firms.
• Most traditional private equity funds require investors to be accredited and commit capital for extended periods, often 7-10 years or longer.
• Access is expanding. Newer platforms, funds of funds, and ETFs are making it easier for individual investors to gain exposure at lower minimums, though most private equity opportunities remain limited to accredited investors.
• Understanding the fee structure, liquidity constraints, and risk profile of any private equity investment is essential before committing capital.
• Platforms like Heron Finance are making it possible for accredited investors to access diversified private equity portfolios with lower minimum investments and the potential for quarterly liquidity.

Table of contents

• What is private equity?
• How private equity funds work
• Ways to invest in private equity
• How to invest in private equity with Heron Finance
• FAQs

Private equity has long been a fixture in the portfolios of pension funds, endowments, and ultra-high-net-worth investors. In recent years, more individual investors have started looking at private equity as a way to diversify beyond public stocks and bonds and potentially capture stronger long-term returns.

But for most people, the asset class remains unfamiliar territory. How do private equity funds actually work? What kind of returns should you expect? And how do you get started if you don't have millions of dollars to invest?

This guide covers the fundamentals of private equity investing, how funds are structured, the main strategies you'll encounter, and the practical ways you can access the asset class today.

What is private equity?

Private equity is capital invested in companies that are not listed on public stock exchanges. Instead of buying shares of a company through a brokerage, private equity investors contribute capital to funds that acquire, grow, and eventually sell stakes in private businesses.

The goal is straightforward: buy or invest in companies, help them increase in value over time, and then sell those investments at a profit. The timeline is typically measured in years, not days or months.

There are several broad categories of private equity strategies:

• Leveraged buyouts (LBOs): A fund acquires a controlling stake in a mature company, often using a combination of equity and debt. The fund then works to improve the company's operations, profitability, or market position before eventually selling it.
• Growth equity: Investments in established companies that need capital to expand, enter new markets, or fund acquisitions. These companies are typically profitable or near-profitable and looking to scale.
• Venture capital: Capital provided to early-stage startups with high growth potential. Venture capital is higher risk than buyouts or growth equity, but the upside can be significant if the companies succeed.
• Distressed investments: Funds that acquire companies or debt at a discount during periods of financial difficulty, aiming to restructure and turn them around.

Private equity represents a sizable portion of the global economy. The asset class currently manages approximately $10.8 trillion, and it includes many well-known companies that you interact with daily but can't invest in through the stock market.

Why investors consider private equity

There are a few reasons private equity has historically attracted institutional capital:

• Long-term performance: According to research from MSCI and Vanguard, global buyout funds have delivered annualized outperformance of approximately 3.8% above public equity benchmarks over the past 30 years, after fees. As an illustration, a $1 investment in global buyout funds in 2015 would have grown to roughly $3.80 by 2025, compared to $2.69 in the MSCI ACWI Index. However, past performance is not indicative of future results, and private equity returns vary significantly by fund, strategy, and vintage year.
• Diversification: Private equity provides exposure to a much broader universe of companies. The public stock market has grown increasingly concentrated — the top 10 companies in the S&P 500 now represent over 35% of the index. Private equity can help investors access the thousands of companies that don't appear in a public index.
• Active value creation: Unlike passive public market investing, private equity fund managers typically take an active role in the companies they invest in, working with management teams to drive operational improvements, strategic growth, and ultimately higher valuations.

That said, private equity is not without risks. Investments are illiquid, lock-up periods can span years, and there is always the possibility of losing some or all of the capital invested. Fees tend to be higher than public market equivalents, and the complexity of the asset class means investors should understand what they're committing to.

How private equity funds work

Most private equity investing happens through pooled funds structured as limited partnerships. Understanding this structure is helpful for evaluating any private equity opportunity.

The general partner and limited partner model

A typical private equity fund has two key participants:

• General partners (GPs): The fund managers who make investment decisions, manage portfolio companies, and run the day-to-day operations of the fund. GPs source deals, perform due diligence, and oversee investments through their lifecycle.
• Limited partners (LPs): The investors who commit capital to the fund. LPs are passive participants — they provide the money, but the GP decides how it's invested. In return, LPs receive the majority of the fund's profits. LPs include pension funds, endowments, insurance companies, family offices, and increasingly, individual accredited investors.

How capital is deployed

When you commit to a private equity fund, your capital isn't invested all at once. Instead, funds use a capital call system. You pledge a certain amount, and the GP draws down that commitment in stages as they identify investments. The capital you haven't yet deployed is sometimes called "dry powder."

This process typically plays out over the first few years of a fund's life. The fund then holds and manages investments for several more years, eventually selling them and returning capital to investors. A full fund lifecycle often spans 7-10 years, though some funds have shorter or longer timelines.

Fee structures

Private equity funds typically charge two layers of fees:

• Management fee: An annual fee, usually 1-2% of committed or invested capital, covering the fund's operational costs.
• Carried interest: A performance-based fee, typically 20% of profits above a preferred return threshold (often around 8%). This aligns the GP's incentives with investor returns — the GP earns more only if the fund performs well.

Understanding the total cost of investing in private equity is important, as fees directly impact net returns. When comparing performance data, make sure you know whether the figures are reported before or after fees.

Ways to invest in private equity

The traditional path to private equity — committing directly to a fund as a limited partner — remains available, but it typically requires very large minimum investments (often $250,000 to $25 million or more) and accredited investor status. For individual investors, several alternative methods provide more accessible entry points.

Funds of funds

A fund of funds invests in multiple private equity funds rather than directly in companies. This offers diversification across strategies, geographies, and vintage years (the year a fund starts investing). The trade-off is an additional layer of fees on top of the underlying fund fees.

Private equity ETFs

Exchange-traded funds like the ProShares Global Listed Private Equity ETF (PEX) or the Invesco Global Listed Private Equity ETF (PSP) provide exposure to publicly traded private equity firms and business development companies (BDCs). These trade like regular stocks with low minimums and daily liquidity. However, it's important to understand that these ETFs invest in the stock of private equity firms, not directly in private companies themselves. The return profile may differ significantly from actual private equity fund returns.

Business development companies (BDCs)

BDCs are publicly traded companies that invest in small and mid-sized private businesses, primarily through debt. They are required to distribute most of their income to shareholders, making them an income-oriented way to get some private market exposure. BDC shares can be purchased through any brokerage account.

Private market platforms

A growing number of technology-driven platforms like Heron Finance have emerged to help individual accredited investors access private equity funds at lower minimums and without complex capital deployments. These platforms handle fund selection, portfolio construction, and ongoing management, making it possible to invest in the same types of funds that institutional investors use — but without the multi-million-dollar minimums or the administrative complexity.

Direct investments and co-investments

Some investors choose to invest directly in private companies or participate in co-investment opportunities alongside a fund. This approach requires significant capital, deal sourcing capabilities, and the ability to perform independent due diligence. It's generally most appropriate for experienced investors or family offices.

How to invest in private equity with Heron Finance

Heron Finance is an SEC-registered investment advisor that offers automated private market portfolios, including dedicated private equity strategies. The platform is designed to make institutional-quality private equity investing accessible to individual accredited investors.

Here's how investing in private equity works through Heron Finance:

• Diversified exposure: Through Heron, investors gain access to 4 private equity funds representing over 7,000 underlying companies. Fund managers on the platform include firms like Ares, Carlyle, and StepStone, with an average track record of 20+ years.
• Lower minimums: Heron's minimum investment starts at $5,000, significantly lower than the often seen six- or seven-figure minimums required to access some private equity funds directly.
• Simple fee structure: Heron charges a 1% annual management fee, which is already reflected in the returns shown on the platform. Underlying fund managers may charge their own separate fees. Investors should review all applicable fee disclosures before investing.
• Automated portfolio construction: Investors take a short quiz and receive a personalized portfolio recommendation. Depending on their goals, portfolios may include private equity alongside other private market asset classes like private credit and private infrastructure. (See how investing in private markets with Heron works.)
• Retirement account support: Heron supports tax-advantaged accounts including IRAs, so investors can hold private equity in a retirement portfolio.
• Liquidity flexibility: Investors can request redemptions at any time, with Heron aiming to fulfill requests within one quarter.
• Dedicated support: The Heron team offers optional one-on-one consultations and white-glove support at every step of the investment process.

As with any private equity investment, Heron's strategies involve material risks, including the potential loss of principal, illiquidity, and long holding periods. Redemption requests are subject to fund-level liquidity and are not guaranteed to be fulfilled within any specific timeframe. Private equity investments may not be suitable for all investors, and prospective investors should carefully review all offering documents and risk disclosures before investing.

Heron Finance is available to U.S. accredited investors. To learn more, visit heronfinance.com to take the portfolio quiz and get a personalized recommendation.

Frequently asked questions

How to get into private equity investing?

The first step is to determine whether you qualify as an accredited investor, which generally means having an annual income of $200,000 or more ($300,000 jointly) or a net worth exceeding $1 million, excluding your primary residence. From there, you can explore access points such as private equity funds, funds of funds, ETFs that hold private equity-related stocks, or private market platforms that offer lower minimums and simplified investment processes. Each option has different risk, return, and liquidity profiles, so it's worth understanding the trade-offs before choosing one. Heron Finance is one platform that simplifies the process for accredited investors looking to get started with private equity.

How to invest in private equity funds?

Investing in a private equity fund typically involves committing capital as a limited partner. The fund's general partner then calls your capital over time as they identify investments. Minimum commitments for traditional funds can range from $250,000 to $25 million or more. For more accessible options, private market platforms aggregate investor capital and provide exposure to established funds at lower minimums. For example, Heron Finance offers access to diversified private equity funds starting at $5,000 and aims to fulfill redemption requests on a quarterly basis. With traditional funds, expect to have your capital locked up for several years, as private equity funds have defined lifecycles that can span a decade.

Where can I invest in private equity?

There are several avenues available depending on your investor profile and capital. You can invest through traditional private equity firms if you meet their minimum thresholds, through your financial advisor if they have access to private market offerings, through self-directed retirement accounts that support alternative investments, or through technology-driven platforms that specialize in private market access for accredited individuals. The landscape has expanded significantly in recent years, giving more investors more options than ever before. Platforms like Heron Finance offer one streamlined option for accredited investors seeking diversified private equity exposure.

How do private equity investments perform compared to public equity?

Over the long term, private equity has generally outperformed public equity. According to research from MSCI, global buyout funds have delivered annualized outperformance of approximately 3.8% above public equity benchmarks over the past 30 years, after adjusting for fees. However, performance varies meaningfully by time period, strategy, and individual fund. In the short term, there have been stretches where public equity outperformed — for example, between 2022 and 2025, global public equity returned approximately 8.2% annually versus 4.9% for global buyout funds, according to Vanguard research. There is no guarantee that private equity will outperform public markets in any future period. Past performance is not indicative of future results, and individual investor returns will vary.

How to invest in a private equity ETF?

Private equity ETFs can be purchased through any standard brokerage account, just like any other ETF. Options include funds like the ProShares Global Listed Private Equity ETF (PEX) or the Invesco Global Listed Private Equity ETF (PSP). Keep in mind that these ETFs invest in the publicly traded stock of private equity firms and business development companies — they don't provide direct ownership of private companies. As a result, their return profile may differ from actual private equity fund performance. Expense ratios vary, so compare costs before investing.

What are private equity investments?

Private equity investments are stakes in companies that are not listed on public stock exchanges. These investments are typically made through pooled funds that acquire, grow, and eventually sell private businesses. Common strategies include leveraged buyouts (acquiring and improving established companies), growth equity (funding expansion of profitable businesses), venture capital (investing in early-stage startups), and distressed investing (acquiring companies or debt at a discount during financial difficulty). Private equity investments are generally illiquid, require extended holding periods, and carry a higher risk profile than public stocks, but they also offer the potential for stronger long-term returns and portfolio diversification.

Disclosures

*Represents the annualized monthly returns of an equal weighting of the private equity funds available on Heron, since each fund's inception date up to the last month of completed data. Data is typically completed within 3 months. Returns are shown after Heron's 1% management fee has been deducted, with interest automatically reinvested. Return represents overall performance, including interest earned and net changes in principal (accounting for any appreciation/depreciation). This is intended for informational purposes only and does not guarantee future performance or results.

This content is for informational purposes only and does not constitute an offer to sell securities, a solicitation of an offer to buy securities, or individualized investment advice. No communication by Heron Finance or any of its affiliates through this content should be construed or is intended to be investment, tax, financial, accounting, or legal advice.

About Heron Finance: Heron Advisory, Inc., d.b.a. Heron Finance, is an SEC-registered investment advisor . SEC registration does not imply a certain level of skill or training, nor does it constitute an endorsement by the SEC of the entities, products, or services discussed herein. Heron Finance is available to U.S. accredited investors only.

Risk factors: Private equity investments involve a high degree of risk, including the potential loss of the entire investment. Key risks include but are not limited to: illiquidity and long holding periods, limited transparency into underlying holdings, sensitivity to economic and market conditions, use of leverage by underlying funds, concentration risk, and reliance on fund manager performance. Investors may not be able to access their capital when needed. Redemption requests are subject to fund-level liquidity constraints and are not guaranteed to be fulfilled within any specific timeframe. These investments may not be suitable for all investors.

Performance information: All performance figures referenced in this article are historical and presented net of Heron's 1% annual management fee unless otherwise noted. Performance data for Heron's private equity strategy reflects the blended results of underlying third-party private equity funds available on the platform and is based on data reported by those fund managers, which may be subject to reporting lag, estimation, or revision. Third-party industry performance data cited in this article (including data attributed to MSCI, Vanguard, and the American Investment Council) reflects publicly available research and may rely on differing methodologies, time periods, or investment universes than Heron's strategies. These comparisons are provided for illustrative purposes only and may not represent a direct comparison. Past performance is not indicative of future results. There is no guarantee that any investment strategy will achieve its objectives or avoid losses. Individual investor results will vary.

Fees: Heron charges a 1% annual management fee. Underlying fund managers may charge additional management fees, carried interest, or other expenses that are separate from Heron's fee. Fees reduce investment returns. Investors should review all applicable fee disclosures and offering documents before investing.

Diversification: Diversification does not ensure a profit or protect against loss in declining markets.

Third-party references: References to specific companies, funds, ETFs, or third-party research in this article are for educational purposes only and do not constitute endorsements or investment recommendations. Heron Finance is not affiliated with any third-party fund manager, ETF provider, or research firm mentioned herein unless explicitly stated.

All investors should consult their own financial, tax, and legal advisors regarding their specific circumstances before making any investment decisions.