Private equity firms invest in companies which are not publicly traded and work to expand or turn them around. Private equity firms usually raise funds through an investment fund with a clearly defined structure and distribution waterfall and invest the funds into the target companies. Limited Partners are the investors in the fund, whereas the private equity firm is the General Partner responsible for purchasing selling, buying, and managing the funds.
PE firms can be critiqued for being uncompromising and pursuing profits at all price, but they have extensive management experience that allows them to improve the value of portfolio companies by improving the operations and other functions. For instance, they could guide new executive teams through the best practices for financial and corporate strategy and help implement streamlined accounting, procurement, and IT systems to reduce costs. They can also find operational efficiencies and boost revenue, which is one way to enhance the value of their holdings.
Private equity funds require millions of dollars to invest and they can take years to sell a business with a profit. This makes the industry highly in liquid.
Working at a private equity firm typically requires previous click reference experience in banking or finance. Associate entry-levels focus on due diligence and financing, while senior and junior associates focus on the relationship between the firm and its clients. Compensation for these roles has been on an upward trend in recent years.