Private equity firms invest in companies that are not publicly listed and then work to expand or transform them. Private equity firms raise capital by way of an investment fund that has a clearly defined structure, distribution system and then invest it into their chosen companies. Investors in the fund are known as Limited Partners, and the private equity firm is the General Partner responsible for purchasing and selling the targets to maximize returns on the fund.
PE firms are often criticised for being ruthless in their pursuit of profit They often have a vast management experience that allows them increase the value of portfolio companies through operations and other support functions. They can, for instance assist a new executive team by providing the best practices for corporate strategy and financial planning and assist in implementing streamlined accounting, IT, and procurement systems to reduce costs. They can also increase revenue and improve operational efficiency that can help them improve the value of their assets.
Unlike stock investments which can be quickly converted to cash, private equity funds usually require millions of dollars and can take years before they are able sell a company they want to purchase at a profit. This is why the business is highly inliquid.
Working for a private equity company typically requires previous experience in finance or banking. Associate entry-level associates are principally responsible for due diligence and finance, whereas junior and senior associates are responsible for the relationships between the clients of the firm and the company. Compensation important source for these roles has been on an upward trend in recent years.