Jurisdiction(s):
United Kingdom

Key definition

Private equity definition

What does Private equity mean? Private equity describes investment by professional funds in unlisted (unquoted) companies to obtain minority or controlling stakes, financing growth, management buy-outs/ins, recapitalisations or turnarounds, often alongside acquisition debt. The shares acquired are not admitted to trading on a stock exchange, so are less marketable and less liquid than public (quoted) equity. The term is not defined in legislation or case law; it is a market description used consistently across England & Wales, Scotland, Northern Ireland and Ireland. Transactions are privately negotiated and typically documented through investment and shareholders’ agreements, amended articles, preference shares or loan notes, management incentive arrangements (such as...

BVCA-standard IRR in private equity: calculation, use, criticisms, modified IRR and NPV

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Practice notes

Internal rate of return (IRR)

Internal rate of return (IRR) is the benchmark financial metric set by the British Private equity & Venture capital Association (BVCA) for judging private equity outcomes and making comparisons across investments. IRR seeks to identify the break-even rate for an investment while recognising the time value of money, and is typically described as the discount rate that, when applied to a sequence of projected cashflows from a specific investment, results in the net present value of anticipated cash inflows (eg investments or loans to an investee company) being equal to the net present value of anticipated cash outflows (eg dividends or interest from the investee company or exit proceeds)...

The formula

0 = P0 + P1/(1+IRR) + P2/(1+IRR)^2 + P3/(1+IRR)^3 + ... + Pn/(1+IRR)^n, where P0, P1, ... Pn represent the cashflows in periods 1, 2, ... n, respectively...

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Web page updated on 21/05/2026

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