Private equity firms invest in businesses that are not listed publicly and then work to grow or turn them around. Private equity firms raise capital in the form of an investment fund with a defined structure, distribution waterfall and then invest it into their target companies. Fund investors are referred to as Limited Partners, and the private equity firm acts as the General Partner responsible for purchasing, managing, and selling the targets to maximize profits on the fund.
PE firms are often critiqued for being uncompromising and pursuing profits at every price, but they have years of management experience that allows them to improve the value of portfolio companies by enhancing operations and supporting functions. They can, for instance, guide a new executive team by guiding them through the best practices in financial and corporate strategy and assist in the implementation of streamlined accounting, IT, and procurement systems to reduce costs. They can also boost revenue and identify operational efficiencies which can help increase the value of their assets.
Private equity funds require millions of dollars to invest, and it can take them years to sell a business at a profit. This is why the sector is illiquid.
Private equity firms require experience in banking or finance. Associate entry-levels are primarily responsible for due diligence and finance, while junior and senior associates are responsible for the relationships between the clients of the firm and the company. In recent years, the pay for these roles has risen.
