Private equity firms invest in companies that aren’t publicly traded, and then work to grow or turn them around. Private equity firms raise capital in the form an investment fund that has a predetermined structure, distribution waterfall and then invest it into their chosen companies. The fund’s investors are referred to as Limited Partners, and the private equity company is the General Partner, responsible for buying, managing, and selling the target companies to maximize the returns on the fund.
PE firms are sometimes criticized as being ruthless in their pursuit of profit, but they often have a vast management experience that allows them increase the value of portfolio companies through operations and other support functions. For example, they can guide new executive staff through the best practices of corporate strategy and financial management https://partechsf.com/partech-international-ventures and help implement streamlined accounting procurement, IT, and methods to reduce costs. They can also increase revenue and identify operational efficiencies, which can help them increase the value of their assets.
In contrast to stock investments, which can be converted quickly into cash however, private equity funds typically require a large sum of money and can take years before they are able sell a target company for profit. The industry is therefore highly liquid.
Private equity firms require prior experience in finance or banking. Associate entry-level associates are responsible for due diligence and finance, whereas senior and junior associates are accountable for the relationship between the clients of the firm and the company. Compensation for these positions has been on a rising trend in recent years.