A private equity company takes an ownership stake in a company that isn’t listed publicly and then is able to turn the business around or expand it. Private equity firms typically raise funds in the form of an investment fund with a defined structure and distribution system, and then they invest that money into their target companies. Limited Partners are the investors in the fund, and the private equity firm is the General Partner responsible for purchasing, selling, and managing the funds.

PE firms can be accused of being ruthless and pursuing profits at every cost, but they are armed with extensive management experience that allows them to increase value of portfolio companies by enhancing operations and other functions. For instance, they are able to walk a new executive staff through the best practices of financial and corporate strategy and help implement streamlined accounting, procurement, and IT processes to cut costs. They can also identify operational efficiencies and boost revenue, which is a way to increase the value of their possessions.

In contrast to stock investments, which can be converted in a matter of minutes to cash, private equity funds usually require millions of dollars and may take years before they can sell a target company for profit. Because of this, the industry is highly illiquid.

Working for a private equity firm usually requires prior experience in finance or banking. Associate entry-levels focus on due diligence and financing, whereas junior and senior associates focus on the relationship between the firm and its clients. Compensation for these roles has been on an upward trend in recent years.

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