In order of highest to lowest returns in private equity, which is the correct sequence?

The correct sequence of highest to lowest returns in private equity is based on the typical risk-return profile associated with various investment strategies.

Venture capital often yields the highest returns among private equity categories due to its focus on financing early-stage companies with significant growth potential, albeit with high risk. Investors can reap substantial returns if these companies succeed.

Distressed companies come next in terms of expected returns. While investing in distressed companies can carry a unique set of risks, it also presents opportunities to acquire businesses at lower valuations. Investors can realize high returns if they successfully turn around these companies.

Leveraged buyouts (LBOs) generally offer moderate returns, as they involve acquiring established companies with stable cash flows using significant amounts of debt. Although the potential for return exists through operational improvements and financial engineering, the level of debt can also limit upside compared to venture capital.

Mezzanine capital typically represents the lowest expected returns among these options. This form of financing sits between equity and traditional debt in the capital structure, often providing a lower risk-return profile. Investors receive interest payments and may also have the option to convert to equity, but the returns generally do not match the higher-risk equity investments.

This sequence accurately reflects the typical risk-return dynamics in private equity investments,