In contrast, Mr. Kelty's firm is publicly traded, so he has permanent capital--meaning there's no time limit for giving capital back, Mr. Kraska said.

There are other structures, as well, "but the distinguishing feature of private equity is that these are firms that want to invest in a business, own it for a period of time, and then sell it--make a return," he said.

Offering another perspective on how such outfits operate, Denise Marks, chief financial officer and partner at Boston-based SV Life Sciences, a PE firm committed to the life sciences industry, drew parallels between PE funds and mutual funds for insurance underwriters attending the Professional Liability Underwriting Society D&O Symposium early last month.

"We generally raise a pool of money from an investor group that we then use to invest in equity and debt investments in portfolio companies," she said. "Not unlike a mutual fund--where you write a check to Fidelity or Vanguard, and you charge a professional fund manager with investing those funds on your behalf, hopefully generating positive returns--that is how our firm and our funds are structured."

Each fund "is a separate pool of assets with a separate set of investors," she noted--adding, however, that unlike mutual funds, they are not liquid in the near term.

She went on to explain that the funds managed by her firm are typically structured as limited partnerships. "Our investors are the limited partners, and my fund and my partners act as members of the general partnership entity [that] guides...decisions for how funds are invested."

Investors, she said, include institutional investors, like pension funds, and corporations that earmark some portion of their assets to alternative investments.

As the manager of the fund, her firm draws a management fee from assets committed to a fund, based on a formula, she said.

The "key incentive" for the general partners of a fund, however, is something called "carried interest," she noted, explaining that this is essentially the fee paid on the profit share of the fund--typically 20 percent of net profits.

Ultimately, realizations in the underlying investments are derived from mergers, acquisitions or initial public offerings of the underlying portfolio companies, she said--noting that in the life sciences arena, where exits are most often achieved through M&A deals with large biotech or pharmaceutical companies, it can take 13-to-15 years before all the portfolio companies are fully liquidated.

At the NAPSLO meeting, Mr. Kraska distinguished "venture capital" PE funds, noting that venture funds are simply geared to start-ups or early stage businesses. Both Mr. Vecchio and Mr. Kelty said these are not the types of investment opportunities they seek.

"There's still product risk [and] market risk" in the venture capital world, said Mr. Vecchio. "Insurance is a mature industry, and we're looking to invest in companies that are already profitable--that already have customers and revenues."

In contrast, Mark Watson, CEO of Bermuda-based Argo Group International Holdings Ltd., a specialty insurer, said, "We actually like investing in start-ups, particularly things that are similar to what we're doing strategically."

He noted, for example, that his company was one of the 1999 original partners behind the online personal auto insurance agency Esurance. "If you bought the policy online, you actually received an Argonaut Insurance Company policy," he said.