A private equity firm takes a stake in a business which is not listed on the stock exchange and seeks to turn the company around or increase its size. Private equity firms raise money through an investment fund that has a predetermined structure, distribution waterfall and then invest it in the companies they want to invest in. Limited Partners are the investors in the fund, while the private equity firm is the General Partner accountable for buying selling, managing, and buying the funds.
PE firms can be accused of being ruthless and pursuing profits at every 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 example, they can guide new executive staff through the best practices for corporate strategy and financial management and assist in implementing streamlined accounting procurement, IT, and systems to drive down costs. They also can find operational efficiencies and boost revenues, which is one way they can improve the value of their possessions.
Private equity funds require millions of dollars to invest and it can take years to sell a business with a profit. This is why the market is extremely inliquid.
Working for a private equity company typically requires previous experience in finance or banking. Associate entry-levels are primarily responsible for due diligence and financials, while junior and senior associates are accountable for the interaction between the clients of the firm and the company. Compensation for these roles has been on a rising trend in recent years.