Private equity firms invest in businesses that aren’t publicly traded and then work to expand or transform them. Private equity firms typically raise funds through an investment fund with a defined structure and distribution plan and then invest that money into their targets companies. The investors in the fund are referred to as Limited Partners, and the private equity firm acts as the General Partner responsible for purchasing and selling the targets to maximize returns on the fund.
PE firms are often 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 by implementing operations and other support functions. For instance, they can guide new executive staff through the best practices for financial and corporate strategy and assist in the implementation of streamlined accounting, procurement, and IT processes to cut costs. They can also identify ways to improve efficiency and increase 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 business with a profit. In the end, the industry is extremely illiquid.
Working at an investment firm that deals in private equity typically requires previous experience in finance or banking. Associate positions at entry level focus on due diligence and financing, whereas junior and senior associates concentrate on the relationship between the firm and its clients. In see post recent times, compensation for these roles has risen.
