Private equity firms invest in businesses that aren’t publicly traded and work to grow or turn them around. Private equity firms raise capital in the form an investment fund with a specific structure, distribution waterfall, and then invest it into the companies they want to invest in. Investors in the fund are referred to as Limited Partners, and the private equity firm serves as the General Partner, responsible for buying and selling the targets to maximize returns on the fund.

PE firms can be criticized for 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 enhancing the operations and other functions. They could, for example assist a new executive team by providing the best practices for financial strategy and corporate strategy and assist in the implementation of more efficient IT, accounting, and procurement systems to lower costs. They can also boost revenue and identify operational efficiencies that can help them improve the value of their assets.

Contrary to stock investments that can be quickly converted to cash however, private https://partechsf.com/generated-post equity funds typically require a lot of money and can take years before they are able to sell their target companies at an income. This is why the industry is highly illiquid.

Working at an investment firm that deals in private equity typically requires prior experience in finance or banking. Associate entry-level associates are principally responsible for due diligence and finance, while junior and senior associates are accountable for the interaction between the firm’s clients and the firm. In recent years, compensation for these roles has increased.