portfolio might be expected to differ markedly from a mixed portfolio that incorporates a blend of sectors, industries, company sizes, and locations. And none of these would be expected to closely resemble a portfolio of whatever commitments the world's private equity investors made in a given year. MECHANICS OF PRIVATE EQUITY INVESTMENT______________ Private equity investments are not readily accessible to investors in the same way that publicly traded equity investments are. Where publicly traded securities can be bought and sold at any time, without necessarily changing control of the firm, private companies have no such open market. Most private equity transactions are between individuals or firms, and typically involve a change of control-that is, the new investors generally buy the company from the previous owners. However, some portion of private equity investments are accessible to financial investors. The most common way this is done is through partnership interests. A partnership will be formed with a general partner, who usually has some form of experience and expertise in a particular kind of private equity investment. The financial investors are limited partners, who don't usually provide cash when the partnership is formed but instead make commitments to provide cash when called upon. These commitments are for a limited size and for a limited period of time (typically five years). When the general partner finds an attractive investment, he or she will make a capital call on the commitments of the limited partners in order to finance the purchase. The general partner then manages the investment for some period of time, which may involve working with corporate management of the investment, installing new management, helping with operational matters, or adding value in other ways. Finally the investment is liquidated, often by an initial public offering (IPO) or sale to another buyer, and the proceeds are distributed to the partners. This cycle often takes five years or more for each such investment, although shorter investments are also possible. The limited partners typically pay fees to the general partner for managing the investments. In addition, the general partner usually receives a fraction of the profits, if any, on each investment (commonly in the vicinity of 20 percent). This fraction of profits is often called a carried interest. Once a commitment to a private equity partnership is made, it is not readily exited. General partners will not usually release limited partners from commitments, as this would compromise their ability to make investments on behalf of the partnership. Although there are some secondary buyers for limited partnership interests, these transactions are often time-consuming and usually require the consent of the general partner for the transfer. VALUATION AND RETURN STATISTICS IN PRIVATE EQUITY Since private equity investments do not trade regularly, there are difficulties in establishing valuations for them, and consequent difficulties in estimating return statistics