Private equity is a form of partnership among investors who pool funds to buy and restructure private companies, then sell them off in the future to make a profit.

The management of private equity investments is usually in the hands of a private equity firm headed by a general partner (GP) who makes all the decisions on behalf of the investors. The general partner must also ensure that the firm is an investor in the fund to ensure that it would give maximum priority to and make the best decisions for the fund's investments. The clients of a private equity firm are called limited partners and receive distributions according to the value of their investments.

The value strategies of a private equity fund must be constructed by the firm that acquires the investments (companies). This means the fund must have a plan when buying out a company to make it profitable. Because they are usually transition owners, general partners may make decisions such as restructuring the company or slashing the operation costs of the company, to make a quick turnover during the sale.

Other techniques to promote the value of the fund's investment include employing professionals in the industry sector to advise the firm on the steps to enhance the value of the company. Such steps may include acquiring an e-commerce team, gaining new technology that the company previously did not utilize, or possible profitable markets the company may enter into.

Most private equity firms specialize in the kinds of funds that they manage. The most popular specialization firm is a venture capital firm, which buys out startup companies with high-growth potential. Growth equity, as a division of private equity also targets startups but provides them with funding to expand beyond the startup stage while acquiring a significant portion of the company.

Distressed investing is another subset of private equity. This firm targets potentially profitable companies with financing issues struggling to stay afloat. Because of these companies' near-bankruptcy, the investors can buy it for a low price, restructure the company, and sell it for a much higher price.

Some firms only invest in particular sectors of the economy, such as technology or health care, and these are called sector specialists. Other firms specialize in buying private equity investments from other private equity firms, and this process is called a secondary buyout.

While some firms engage in secondary buyouts of the entire company, some firms specialize in carve-outs - buying some units or subsidiaries of the company. This would help the firm increase the stock price of the investment.

The concept of regulation on private equity firms applies only to the managers of the firm according to the Investment Advisers Act of 1940 and other legislation governing anti-fraud practices in the country. However, the Securities and Exchange Commission in 2022 recommended a few additions to the rules regarding client disclosure to the responsibilities of private fund managers.

These recommendations state that private fund managers registered under the Securities and Exchange Commission are to be restricted from selectively providing clients with preferential terms in the investment while not publicizing the same terms to other clients in the same investment fund.