Private equity firms invest in companies which are not publicly traded and then attempt to expand or transform them. Private equity firms usually raise funds in the form of an investment fund that has a clearly defined structure and distribution funnel and then invest the funds into their targets companies. Limited Partners are the investors in the fund, and the private equity firm is the General Partner responsible for purchasing selling, managing, and buying the funds.
PE firms are sometimes criticized as being ruthless in their pursuit of profits However, they typically have an extensive management background which allows them to enhance the value of portfolio companies through operations and other support functions. They can, for instance, guide a new executive team by guiding them through the best practices in financial and corporate strategy and help implement streamlined IT, accounting and procurement systems that reduce costs. They can also increase revenues and discover operational efficiencies that can help them increase the value of their assets.
Unlike stock investments which can be converted quickly into cash and cash, private equity funds generally require a large sum of money and could take years before they are able to sell their target companies at profit. This is why the sector is illiquid.
Working at a private equity firm usually requires prior experience in banking or finance. Associate entry-level associates are principally responsible for due diligence and financials, while senior and junior associates are accountable for the relationship between the firm’s clients and the firm. In recent times, compensation for these positions has increased.