Private equity firms used to be hidden away, accessible only to the richest investors – or those with the right business card in their wallets. Now, they’ve become a cornerstone of institutional investors’ strategies.

Essentially, private equity firms invest in private companies. Unlike public companies, private ones typically have a smaller set of shareholders, which allows private equity firms to buy either a significant stake or the entire business. Firms can also acquire listed companies in a “public to private” or P2P deal, taking them off the stock market.

Of course, that is a high-risk, high-cost strategy. While it’s true that private companies can be the most innovative, fast-moving, and problem-solving businesses out there, they usually prioritize reinvestment and growth over returns. Not to mention, plenty of private companies fold before they get the chance to go public or complete a private sale.

Private equity companies employ a wide range of strategies, and this can vary from firm to firm. Some of the most common include:

Leveraged buyouts: when firms use a combination of equity and debt to buy a controlling stake in a business, before improving its fundamentals and operations in an effort to sell the company for a profit down the line.

Venture capital: the act of investing in startups or early-stage firms that are teeming with potential. Usually, these businesses are in the technology or healthcare sectors, which tend to move faster than other industries and foster more drastic innovations.

Growth capital: a more active strategy where private equity firms provide strategic advice and access to capital in order to support the businesses’ growth.

The prospects of lucrative returns and mild public market correlation pull investors toward private assets. Specifically, institutions and ultra-high-net-worth individuals are known to invest heavily in the private realm, not least because it can take a lot to get involved: private equity firms tend to be more expensive investments than public companies’ stocks. Investors also need to be aware that private investments are long-term in nature, and there’s little opportunity to “take the cash and run” before the private equity firm exits through a sale or stock market listing. It’s essential, too, that investors choose a reputable private equity firm, as the team’s expertise, experience, and resources could make the difference between success and failure.

The success of any private market investor’s efforts depends, at least partly, on the potential of the target company. Private equity firms use a range of techniques to produce returns for their investors, commonly leaning on analytical and statistical projections for more accurate targeting. Firms like EQT have eschewed the traditional private equity playbook, though. Instead, EQT has built a reputation for prioritizing “responsible ownership” and an industrial approach to growing private companies.

When it comes to realizing returns, the choice of an “exit strategy” can influence the payoff: while the condition of the market may impact the available options, responsibly choosing between private sales, secondary sales, or listing on a stock market is key to ensuring healthy returns and sustainable success for the company.

There are a few reasons why private equity is increasingly entering the public eye – and the factors that have driven its expansion over the last few years stand to push it further forward in the coming ones, too.

Globalization has opened many doors for private equity firms, allowing them not only to invest in international markets but emerging ones. That’s a major opportunity: businesses in emerging markets will usually cost less than in developed ones, but they are brimming with potential since there’s more ground to make up.

Technology has also changed the game. Naturally, private equity firms now have access to time and cost-saving systems. Arguably more important, though, is the impact of technology on markets. The world is moving faster than ever, with new opportunities and concepts emerging by the day, especially in finance, technology, and now, artificial intelligence pockets.

Finally, environmental, social, and governance (ESG) standards are pressuring companies to become cleaner, greener money-making machines – and private equity companies are well-placed to help them do that. Using their expertise and ESG awareness, private equity companies can set businesses up to create value over the long term, while mitigating risks of government interference.

Private equity companies are in the right place to drive meaningful change, equipping ambitious, entrepreneurial companies with the means to help them achieve their mission. The best bit? Their investors can join the journey.