A private equity firm takes the ownership of a business that is not publicly listed and seeks to turn the company around or increase its size. Private equity firms usually raise funds through an investment fund that has a clearly defined structure and distribution funnel, and then they invest that money into the companies they want to invest in. The fund’s investors are referred to as Limited Partners, and the private equity firm serves as the General Partner responsible for buying, managing, and selling the target companies to maximize the returns on the fund.
PE firms can be critiqued for being uncompromising and pursuing profits at every price, but they have extensive management experience that enables them to improve the value of portfolio companies through 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 assist in the implementation of streamlined accounting, procurement, and IT systems to drive down costs. They can also increase revenue and find operational efficiencies which will help them increase the value of their assets.
Private equity funds require millions of dollars to invest, and it could take them years to sell a company for a profit. The industry is therefore highly in liquid.
Working for a private equity firm usually requires previous experience in finance or banking. Associate associates at entry-level work mostly on due diligence and financing, while senior and junior associates focus on the relationship between the firm and its clients. In recent years, compensation for these roles has increased.
Leave A Comment