A private equity firm takes an interest in a company that isn’t listed publicly and then works to turn the company around or grow it. Private equity firms typically raise funds through an investment fund that has a defined structure and distribution system and invest that capital into their targets companies. The fund’s investors are known as Limited Partners, and the private equity firm acts as the General Partner in charge of buying, managing, and selling the funds to maximize returns on the fund.
PE firms are sometimes criticised for being ruthless in their pursuit of profits However, they typically have an extensive management background that allows them to boost the value of portfolio companies by implementing operations and other support functions. They could, for example assist a new executive team by guiding them through the best practices in financial and corporate strategy and assist in the implementation of more efficient IT, accounting, and procurement systems to lower costs. They can also identify operational efficiencies and boost revenue, which is one method to improve 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. This makes the industry highly illiquid.
Private equity firms require experience in finance or banking. Associate associates at entry-level work mostly on due diligence and financing, whereas senior and junior associates focus information technology by board room discussion on the relationship between the firm and its clients. Compensation for these roles has been on a rising trend in recent years.