Private equity firms invest in businesses that aren’t publicly traded and then work to expand or turn them around. Private equity firms raise funds through an investment fund with a specific structure, distribution waterfall and then invest it into their target companies. Limited Partners are the investors in the fund, while the private equity firm is the General Partner responsible for purchasing or selling the fund and overseeing the funds.
PE firms are often critiqued for being uncompromising and seeking profits at all cost, but they possess years of management experience that allows them to boost the value of portfolio companies by improving operations and supporting functions. For instance, they could walk a new executive staff through the best practices for corporate strategy and financial management and assist in the implementation of streamlined accounting procurement, IT, and processes to cut costs. They can also identify operational efficiencies and boost revenue, which is just one way they can enhance the value of their assets.
In contrast to stock investments, which can be converted quickly into cash and cash, private equity funds generally require a large sum of money and may take a long time before they are able sell a target company at a profit. Because of this, the business is highly inliquid.
Working for a private equity firm usually requires prior see post experience in banking or finance. Associate entry-level associates are principally responsible for due diligence and finance, whereas senior and junior associates are accountable for the relationship between the firm’s clients and the firm. In recent years, compensation for these positions has risen.