are severely limited and transient. In private equity, none of these basic assumptions are true. Although this fact can be a handicap to analysis, it can also be the source of excess returns to investors who understand the private equity market. Private equity managers can have an informational advantage in assessing transactions and making investment decisions. In public markets, information is thoroughly regulated and available to many potential investors. In private markets, information is less readily available and much less transparent. The sales of most private companies, for example, are not widely advertised-private equity investors with a large network of contacts and deal sources hear about more deals and have the ability to access those deals. In addition, few private companies issue annual reports or discuss their performance or financial condition. This lack of information means that those investors who engage in thorough and skilled due diligence can make better decisions than other buyers. They can spot hidden value or uncover problems that will influence their views of companies and valuations. Private equity investors also have a chance to add value and make a difference to both start-up companies and larger businesses in need of restructuring or repositioning. Unlike public market investors, who are generally passive owners of small interests in companies, the best private equity investors often control companies and boards of directors, choose management, drive strategy, and affect operational and financial decisions. They also generally can decide how and when to exit an investment, an important advantage that can have a significant effect on investment returns. In addition, while the lack of liquidity in private markets carries risks, private equity investors are often compensated for this risk by often being able to acquire companies at prices lower than comparable, publicly traded companies. The lower prices sometimes come from a less efficient sales process-private equity investors may buy companies outside of auctions where there is less competition and much less information on market prices. Finally, unlike their public counterparts, private companies do not live under the scrutiny of thousands of investors who are highly focused on quarterly results. Private equity investors have a fairly long-term view of investments (typically five years or more), and are willing to accept short-term losses and significant capital investment projects that they believe will create value when they choose to exit the investment. TYPES OF PRIVATE EQUITY INVESTMENT__________________ It is often thought that private equity investments are either new-company startups or possibly transactions in which existing public companies are taken private. In fact, there are a large number of strategies in private equity investing, as depicted in Figure 28.1. These span the entire life of an enterprise, from a seed-stage startup, through development and expansion, to possible turnaround and distressed investments. It is not surprising that these various private equity strategies have different economic sources of risk and return. For example, companies that involve innovations in technology or business models might be expected to have returns that are