A private equity firm buys a stake in a business which is not listed on the stock exchange and then attempts to turn the company around or grow it. Private equity firms typically raise funds in the form of an investment fund with a clearly defined structure and distribution plan, and then they invest the funds into the companies they want to invest in. Limited Partners are the investors in the fund. Meanwhile, the private equity firm is the General Partner, responsible for buying, selling, and managing the funds.
PE firms are sometimes accused of being ruthless in their pursuit of profit, but they often have an extensive management background that allows them to boost the value of portfolio companies through operations and other support functions. For instance, they could guide new executives through the best practices of corporate strategy and financial management and assist in implementing streamlined accounting procurement, IT, and systems to drive down costs. They can also identify ways to improve efficiency and increase revenue, which is just one method to increase the value of their holdings.
Private equity funds require millions of dollars to invest and it can take them years to sell a business in a profit. In the end, the industry is extremely illiquid.
Working at a private equity firm typically requires previous experience in finance or banking. Associate entry-levels are primarily responsible for due diligence and financials, while senior and junior associates are responsible for the relationships between the firm’s clients and the company. Compensation for these roles has been on an upward trend in recent years.