Private equity firms invest in companies which are not publicly traded and then work to grow or turn them around. Private equity firms usually raise funds through an investment fund with an established structure and distribution funnel and put that money into their target companies. Limited Partners are the investors in the fund, whereas the private equity firm is the General Partner, accountable for buying selling, buying, and managing the targets.
PE firms are often accused of being ruthless and pursuing profits at every cost, but they possess years of management experience that allows them to improve the value of portfolio companies by improving the operations and supporting functions. For instance, they could guide new executive staff through the best practices in corporate strategy and financial management and help implement more efficient accounting, procurement, and IT systems to drive down costs. They also can find operational efficiencies and boost revenue, which is a way to enhance the value of their investments.
Contrary to stock investments that are able to be converted quickly into cash, private equity funds usually require a lot of money and may take a long time before they are able sell a target company at a profit. The industry is therefore highly liquid.
Working for a private equity company typically requires prior experience in banking or finance. Associate positions at entry level focus on due diligence and reference financing, whereas junior and senior associates focus on the relationship between the firm and its clients. Compensation for these positions has been on an upward trend in recent years.