Private equity firms invest in businesses that aren’t publicly traded and then work to expand or turn them around. Private equity firms usually raise funds through an investment fund that has a defined structure and distribution waterfall and invest the funds into their target companies. Limited Partners are the investors in the fund, whereas the private equity firm is the General Partner responsible for buying selling, buying, and managing the targets.
PE firms are often accused of being ruthless and seeking profits at all cost, but they possess years of management experience that allows them to boost the value of portfolio companies through improving operations and supporting functions. They can, for instance guide a newly appointed executive team by providing the best practices for financial and corporate strategy and assist in the implementation of streamlined accounting, IT and procurement systems that reduce costs. They also can find ways to improve efficiency and increase revenues, which is one way they can improve the value of their possessions.
Contrary to stock investments that can be converted in a matter of minutes to cash and cash, private equity funds generally require millions of dollars and may take a long time before they are able sell their target companies at a profit. The industry is therefore highly liquid.
Working for a private equity firm usually requires prior experience in banking or finance. Associate associates at entry-level work mostly on due diligence and financing, whereas senior and junior associates focus on the relationship between the firm and its clients. In recent years, compensation for these positions has increased.
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