A private equity firm takes an ownership stake in a company that is not publicly listed and then seeks to turn the company around or increase its size. Private equity firms raise capital in the form of an investment fund with a defined structure, distribution funnel and then invest it into the companies they want to invest in. Fund investors are known as Limited Partners, and the private equity company is the General Partner, responsible for buying, managing, and selling the funds to maximize returns on the fund.
PE firms are often criticised for being ruthless in their pursuit of profits However, they typically have extensive management expertise that allows them increase the value of portfolio companies by implementing operations and other support functions. For example, they can guide new executives through the best practices in financial and corporate strategy and help implement more efficient accounting procurement, IT, and systems to drive down costs. They can also boost revenues and discover operational efficiencies which can help improve the value of their assets.
Private equity funds require millions of dollars to invest, and it can take years to sell a business with a profit. This makes the industry highly liquid.
Working at a private equity company typically requires previous experience in banking or finance. Associate entry-level associates are principally responsible for due diligence and finance, while junior and senior associates are accountable for the interaction between the firm’s clients and the company. In recent years, compensation for these positions has increased.