A private equity firm takes the ownership of a business which is not listed on the stock exchange and seeks to turn the company around or to grow it. Private equity firms typically raise funds in the form of an investment fund that has an established structure and distribution funnel and then invest that money into the target companies. Limited Partners are the investors in the fund, and the private equity firm is the General Partner, responsible for buying selling, buying, and managing the targets.
PE firms are sometimes accused of being ruthless in their pursuit of profits However, they typically possess a wealth of management expertise that allows them to boost the value of portfolio companies through operations and other support functions. For instance, they are able to walk a new executive staff through the best practices of corporate strategy and financial management and help implement more efficient accounting, procurement, and IT systems to reduce costs. They can also find ways to improve efficiency and increase revenue, which is just one way they can enhance the value of their possessions.
Unlike stock investments that can be converted quickly into cash however, private equity funds typically require millions of dollars and may take a long time before they can sell a target company for an income. As a result, the business is highly inliquid.
Private equity firms require previous experience in finance or banking. Associate entry-levels are primarily responsible for due diligence and finance, whereas junior and senior associates are responsible for the relationship between the clients of the firm and the company. In recent times, compensation for these positions has increased.