Private Equity funds generally make highly concentrated bets on the equity of a few companies.  Although they had generally preferred to take complete control, in the bull market of 2006/2007 deals became so large that they were forced to do “club deals”, partnering with other firms to find enough capital to get a deal done.  Once they become owners of these portfolio companies, they generally work closely with management to improve operations in order to make the company more valuable.  They will pay themselves dividends over time, as possible, but the real money is made when either the company is sold or IPOs.

Hedge funds, on the other hand, make a broader set of short-term investments.  There are many strategies that are used (long/short equity, credit, macro, stat arb, etc) and trades can last from milliseconds to years.  Many hedge funds prefer to stay in relatively liquid securities so that they can trade out at any point in time to lock in their profits