In the case where a company is failing, a PE fund buying the company and liquidating it sounds like the market functioning to increase efficiency.

In the case where a company is not failing, but a PE fund acquires it, my question is how come the company wasn't able to sell itself to a buyer who wanted to keep it running? If a company is turning a profit, then it makes more sense for buyers to keep it running.

Now, let's say there is a circumstance where a company is not making very much profit, but has many assets that can be sold off to produce a short term return for the PE fund. Who are the assets being sold to, and why are the buyers able to make a better use of them (better use is implied because they are buying them -- why buy what you can't make money on?)

I don't believe private equity or private credit somehow get exempted from the basic rules of capitalism: if they are doing something that someone else can do differently and make more money, that someone else will out compete them.

If more money can be made by keeping a company together and operating it, PE funds that want to liquidate won't be able to compete with investors who want to buy the company in order to operate it.

Think about it this way: if all the PE fund is doing is buying a distressed company and then selling the assets off, the person buying the assets form the PE fund is far better off just buying the distressed company -- if a profit can be made by operating it. Why would the buyer of the assets put up with the middle man?

I'm sure there are circumstances where PE does things that don't make market sense due to fiat distortions and regulations. But in general, my limited window into PE is that it helps the market be more efficient.

My point with that is that seems to be a subset of companies and is not inherently a trait of private investment

You can just acquire and run a business with the goal of generating sustainable value