A private equity company takes an ownership stake in a company that is not publicly listed and seeks to turn the company around or expand it. Private equity firms raise money in the form of an investment fund with a specific structure, distribution waterfall, and then invest it into their chosen companies. The investors in the fund are known as Limited Partners, and the private equity firm serves as the General Partner in charge of buying, managing, and selling the targets to maximize returns on the fund.
PE firms are sometimes criticised for being ruthless in their pursuit of profits however, they usually have extensive management expertise that allows them to increase the value of portfolio companies by implementing operations and other support functions. For example, they can walk a new executive staff through the best practices of financial and corporate strategy and help implement more efficient accounting procurement, IT, and processes to cut costs. They can also increase revenue and improve operational efficiency which will help them increase the value of their assets.
Private equity funds require millions of dollars to invest and they can take years to sell a company at a profit. This is why the sector is illiquid.
Private equity firms require previous experience in finance or banking. Entry-level associates work primarily on due diligence and financing, while junior and senior associates are focused on the relationship between the firm and its clients. Compensation for these roles has been on an upward trend in recent years.