Private equity firms invest in businesses that are not publicly listed, and then work to expand or turn them around. Private equity firms typically raise funds in the form of an investment fund with a clearly defined structure and distribution plan and then invest the funds into their targets companies. The investors in the fund are known as Limited Partners, and the private equity firm serves as the General Partner responsible for purchasing, managing, and selling the targets to maximize profits on the fund.
PE firms can be critiqued for being uncompromising and seeking profits at all cost, but they possess vast experience in management that allows them to boost the value of portfolio companies through improving the operations and other functions. For instance, they are able to walk a new executive staff through the best practices of financial and corporate strategy and help implement streamlined accounting, procurement, and IT processes to cut costs. They can also increase revenue and find operational efficiencies that can help them increase the value of their assets.
Private equity funds require millions of dollars to invest, and it can take years to sell a company in a profit. This is why the sector is in liquid.
Private equity firms require experience in finance or banking. Associate entry-levels are primarily responsible for due diligence and finance, while junior and senior associates are accountable for the relationship between the clients of the firm and the company. In recent times, compensation for these positions has increased.
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