A private equity firm acquires an ownership stake in a company that is not publicly listed and seeks to turn the company around or grow it. Private equity firms usually raise funds in the form of an investment fund that has a defined structure and distribution plan, and then they invest that capital into the companies they want to invest in. Limited Partners are the investors in the fund, and the private equity firm is the General Partner accountable for buying selling, buying, and managing the targets.
PE firms can be criticized for being ruthless and pursuing profits at all cost, but they are armed with extensive management experience that allows them to boost the value of portfolio companies by enhancing the operations and other functions. They can, for example guide a newly appointed executive team by providing the best practices for corporate strategy and financial planning and assist in implementing streamlined IT, accounting and procurement systems to cut costs. They also can identify ways to improve efficiency and increase revenue, which is just one way to enhance the value of their holdings.
Contrary to stock investments that 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 for profit. As a result, the industry is highly illiquid.
Working at a private equity firm usually requires previous experience in finance or banking. Associate entry-levels are primarily responsible for due diligence and finance, while junior and senior associates are responsible for the relationships between the firm’s clients and the firm. In recent years, the compensation for these roles has increased.
