A private equity firm takes an interest in a company that is not listed publicly and works to turn the company around or expand it. Private equity firms usually raise funds in the form of an investment fund that has a defined structure and distribution waterfall and then put that money into the target companies. Limited Partners are the investors in the fund. Meanwhile, the private equity firm is the General Partner responsible for purchasing selling, managing, and buying the targets.
PE firms are often criticized for being ruthless and pursuing profits at any cost, but they have extensive management experience that allows them to enhance the value of portfolio companies through improving operations and supporting functions. They can, for instance help guide a new executive team through the best practices in financial and corporate strategy and help implement streamlined IT, accounting and procurement systems to reduce costs. They can also boost revenue and find operational efficiencies, which can help them increase the value of their assets.
Contrary to stock investments that can be converted in a matter of minutes to cash however, private equity funds typically require millions of dollars and may take a long time before they are able to sell their target companies at profit. This makes the industry highly in liquid.
Working for an investment firm that deals in private equity typically requires previous experience in finance or banking. Entry-level associates work primarily on due diligence and financing, while senior and junior associates focus on the relationship between the firm and its clients. Compensation for these roles has been on an upward trend in recent years.
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