Private equity firms invest in businesses that aren’t publicly traded and then work to expand or transform them. Private equity firms usually raise funds in the form of an investment fund with an established structure and distribution funnel and then invest that money into their target companies. Limited Partners are the investors in the fund. Meanwhile, the private equity firm is the General Partner, accountable for buying, selling, and managing the targets.
PE firms are sometimes criticized as being ruthless in their pursuit of profits They often have an extensive management background that allows them increase the value of portfolio companies through operations and other support functions. They could, for example help guide a new executive team by providing the best practices for financial strategy and corporate strategy and help implement streamlined accounting, IT, and procurement systems that reduce costs. They can also increase revenue and find operational efficiencies which can help increase the value of their assets.
Unlike stock investments that can be converted in a matter of minutes to cash, private equity funds usually require a lot of money and could take years before they are able sell a company they want to purchase at a profit. This is why the industry is extremely illiquid.
Private equity firms require prior experience in banking or finance. Associate entry-levels are primarily responsible for due diligence and financials, while junior and senior associates are responsible for the relationships between the clients of the firm and the firm. Compensation for these roles has been on a rising trend in recent years.
