We investigate the effect of private equity funds on the governance of targets of partial acquisitions for the 1997-2000 period. We find that private equity funds dominate the partial acquisitions market and account for most of shareholder activism. The three-day cumulative abnormal return (CAR) on partial acquisitions by activist private equity funds is 18.51% showing a significant economic effect of the private equity fund activism on the target firm governance. The CAR for partial acquisitions by non-activist private equity funds is 1.86%, which is likely to reflect a partial resolution of the pricing inefficiencies in small-cap markets. Activist private equity funds are more likely to obtain a board representation. While most activist private equity funds stay with target firms at least for a year, some activist private equity funds close their position within a year via takeover. The takeover anticipation effects appear to be present in the positive market reaction to partial acquisitions by private funds. Underleveraged targets are more likely to be taken over in a year. Furthermore, the market reaction to partial acquisitions by activist private equity funds is particularly large when there is no previous outside block.