Private equity firms invest in companies that aren’t publicly traded and then attempt to expand or transform them. Private equity firms usually raise funds through an investment fund with a clearly defined structure and distribution waterfall and invest that money into their targets companies. Limited Partners are the investors in the fund, and the private equity firm is the General Partner responsible for buying selling, managing, and buying the targets.
PE firms are often criticised for being ruthless in their pursuit of profits, but they often possess a wealth of management expertise that allows them increase the value of portfolio companies by implementing operations and other support functions. For instance, they are able to walk a new executive staff through the best practices for financial and corporate strategy and assist in implementing streamlined accounting procurement, IT, and systems to drive down costs. They can also increase revenues and discover operational efficiencies that can help them increase the value of their assets.
Private equity funds require millions of dollars to invest and it could take them years to sell a company with a profit. As a result, the market is extremely inliquid.
Private equity firms require prior experience in finance or banking. Associate entry-levels are this link primarily responsible for due diligence and finance, while junior and senior associates are accountable for the relationship between the clients of the firm and the company. In recent years, the compensation for these roles has risen.