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A private equity company takes an interest in a company that isn’t listed publicly and then seeks to turn the company around or grow it. Private equity firms raise funds in the form of an investment fund with a specific structure, distribution system and then invest it in their chosen companies. Limited Partners are the investors in the fund, while the private equity firm is the General Partner responsible for purchasing or selling the fund and overseeing the targets.
PE firms are often accused of being ruthless and pursuing profits at any cost, but they possess extensive management experience that enables them to enhance the value of portfolio companies through improving the operations and supporting functions. For instance, they are able to walk a new executive staff through the best practices for financial and corporate strategy and help implement more efficient accounting, procurement, and IT systems to drive down costs. They can also boost revenues and discover operational efficiencies which can help increase the value of their assets.
Private equity funds require millions of dollars to invest and it could take them years to sell a business at a profit. As a result, the industry is extremely illiquid.
Private equity firms require prior experience in banking or finance. Associate entry-levels are primarily responsible for due diligence and finance, while junior and senior associates are accountable for the interaction between the clients of the firm and the company. In recent years, the pay for these positions has increased.
