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A private equity firm is an investment company that raises money from investors to buy stakes in companies and assist them to grow. This differs from individual investors who invest in publicly traded firms which pay dividends, but doesn’t give them direct control over the company’s operations or decisions. Private equity companies invest in a portfolio of companies, called a portfolio, and generally seek to take over the management of these businesses.

They often identify a target company that could be improved and then purchase it, making changes to improve efficiency, cut costs and help the company grow. In some instances private equity firms employ the use of debt to purchase and take over a business also known as a leveraged buyout. They then sell the company for an profit and collect management fees from the companies within their portfolio.

This cycle of buying, selling, and re-building can be a long process for smaller businesses. Many companies are seeking alternative ways to fund their business that give them access to working capital without the management fees of the PE company added.

Private equity firms have fought back against stereotypes portraying them as thieves of corporate assets, highlighting their management skills and demonstrating examples of successful transformations of their portfolio companies. But some critics, including U.S. Senator Elizabeth Warren argues that private equity’s focus is on quick profits that destroy long-term value and hurts workers.

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