Private equity firms invest in businesses that are not publicly listed and then work to expand or turn them around. Private equity firms raise money through an investment fund that has a clearly defined structure, distribution funnel and then invest it in the companies they want to invest in. Limited Partners are the investors in the fund, whereas the private equity firm is the General Partner, responsible for purchasing or selling the fund and overseeing the funds.
PE firms are often criticised for being brutal and seeking profits at all cost, but they are armed with vast experience in management that allows them to improve the value of portfolio companies by improving operations and supporting functions. For instance, they can guide new executive staff through the best practices in corporate strategy and financial management and help implement more efficient accounting, procurement, and IT methods to reduce costs. They can also find operational efficiencies and boost revenue, which is a method to increase the value of their assets.
Contrary to stock investments that can be quickly converted to cash however, private equity funds typically require millions of dollars and can take years before they are able sell a target company at profit. As a result, the business is highly inliquid.
Private equity firms require previous experience in banking or finance. Associate entry-levels focus on due diligence and financing, while junior and click reference senior associates focus on the relationship between the firm and its clients. Compensation for these positions has been on an upward trend in recent years.