A private equity company is an investment firm that invests in helping companies grow by buying stakes. This differs from the individual investors who purchase shares in publicly traded companies, which entitles them to dividends but has no direct influence on the business’s decision-making or operations. Private equity companies invest in groups of companies known as portfolios and are looking to control of these businesses.

They often purchase the company with potential for improvement. They then implement changes to improve efficiency, lower expenses, and expand the company. In certain cases, private equity firms use loans to purchase and take over a business called leveraged buyout. They then sell the business at a profit, and receive management fees from businesses in their portfolio.

This recurring cycle of buying, enhancing and selling can become time-consuming and costly for businesses, especially smaller ones. Many are looking for alternative funding methods that let them access working capital without the burden of the PE firm’s management costs.

Private equity firms have fought back against stereotypes that paint them as squatters of corporate assets, highlighting their management expertise and examples of successful transformations of their portfolio businesses. Critics, such as U.S. Senator Elizabeth Warren, argue that private equity’s focus on making quick profits destroys long-term value and hurts workers.

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