Private equity firms invest in companies that are not publicly listed and then attempt to grow or transform them. Private equity firms raise money in the form an investment fund that has a predetermined structure, distribution funnel and then invest it into their target companies. The fund’s investors are known as Limited Partners, and the private equity firm acts as the General Partner, responsible for buying, managing, and selling the targets to maximize profits on the fund.
PE firms can be criticized for being ruthless and pursuing profits at any cost, but they have extensive management experience that allows them to boost the value of portfolio companies by improving the operations and other functions. They can, for instance, guide a new executive team through the best practices in financial and corporate strategy and assist in the implementation of streamlined accounting, IT and procurement systems to reduce costs. They can also boost revenue and identify operational efficiencies, which can help them improve the value of their assets.
In contrast to stock investments, which can be converted in a matter of minutes to cash and cash, private equity funds generally require a large sum of money and may take a long time before they can sell their target companies at a profit. The sector is, therefore, highly in liquid.
Working for a private equity firm typically requires previous experience in finance or banking. Associate associates at entry-level work mostly on due diligence and financing, whereas senior and junior associates focus on the relationship between the firm and its clients. Compensation for these positions has been on an upward trend in recent years.
Recent Comments