Working at a Private Equity Firm
A private equity firm takes the ownership of a business that isn’t listed publicly and then works to turn the company around or expand it. Private equity firms raise money in the form an investment fund with a defined structure, distribution waterfall and then invest it into their target companies. The investors in the fund are referred to as Limited Partners, and the private equity firm is the General Partner in charge of buying, managing, and selling the funds to maximize returns on the fund.
PE firms are often criticized for being ruthless and pursuing profits at every cost, but they possess vast experience in management that allows them to increase value of portfolio companies through improving operations and supporting functions. They can, for instance assist a new executive team by guiding them through the best practices in financial and corporate strategy and help implement streamlined IT, accounting and procurement systems to reduce costs. They can also find ways to improve efficiency and increase revenue, which is just one method to improve the value of their investments.
Contrary to stock investments that can be converted quickly into cash and cash, private equity funds generally require a large sum of money and may take years before they are able to sell a target company for an income. This is why the sector is in liquid.
Working for an investment firm that deals in private equity typically requires previous experience in finance or banking. Associate positions at entry level focus on due diligence and financing, while junior and senior associates are focused on the relationship between the firm and its clients. Compensation for these positions has been on an upward trend in recent years.