A private equity firm buys the ownership of a business that is not publicly listed and works to turn the company around or grow it. Private equity firms raise funds in the form of an investment fund that has a predetermined structure, distribution system and then invest it into their target companies. Fund investors are known as Limited Partners, and the private equity firm serves as the General Partner in charge of buying, managing, and selling the targets to maximize returns on the fund.
PE firms can be criticized for being ruthless and pursuing profits at every cost, but they possess years of management experience that allows them to boost the value of portfolio companies by improving the operations and other functions. For instance, they could guide new executives through the best practices in corporate strategy and financial management and help implement streamlined accounting procurement, IT, and systems to reduce costs. They can also find operational efficiencies and boost revenue, which is a way they can enhance the value of their investments.
Private equity funds require millions of dollars to invest and they can take years to sell a company at a profit. As a result, the industry is extremely illiquid.
Private equity firms require experience in banking or finance. Associate entry-levels are primarily responsible for due diligence and finance, while junior and senior associates are accountable for the interaction between the clients of the firm and the company. In recent years, compensation for these positions has risen.