A private equity company takes a stake in a business which is not listed on the stock exchange and then works to turn the company around or expand it. Private equity firms typically raise funds through an investment fund that has a defined structure and distribution system and invest that capital into their targets 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 seeking profits at all cost, but they are armed with extensive management experience that allows them to improve the value of portfolio companies by improving the operations and supporting functions. They could, for example help guide a new executive team by guiding them through the best practices in financial strategy and corporate strategy and assist in implementing streamlined IT, accounting, and procurement systems that reduce costs. They can also increase revenues and discover operational efficiencies that can help them increase the value of their assets.
Contrary to stock investments that can be converted in a matter of minutes to cash Private equity funds typically require a lot of money and can take years before they can sell their target companies at a profit. This is why the industry is extremely illiquid.
Working for an investment firm that deals in private equity typically requires prior 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. In recent years, the pay for these roles has increased.