The formal definition of private equity is vaguely:

… The ownership of equity securities in a business not publicly traded.

As simple and concise as this definition is, it doesn’t differentiate between passive and active investors. This is an important distinction because the private equity offering contains much more strategic value than the offering of most other private investors. In this sense, a private equity investment more closely resembles an investment made by a management team. The primary difference being that the private equity professionals do not constitute staff and hence, they represent an extension of management that isn’t completely engrossed in the daily operations of the business. This allows them some independence and a refreshingly different view of the business from the outside world. Therefore, my expanded definition of private equity is:

… the ownership by a value-add investor of equity securities in a business not publicly traded.