Private equity firms invest in companies that are not listed publicly and work to expand or turn them around. Private equity firms typically raise funds through an investment fund with a defined structure and distribution system and invest that capital into the target companies. Limited Partners are the investors in the fund, whereas the private equity firm is the General Partner responsible for purchasing, selling, and managing the targets.
PE firms are often accused of being ruthless and pursuing profits at all cost, but they have extensive management experience that enables them to boost the value of portfolio companies by enhancing the operations and other functions. For instance, they could guide new executives through the best practices in financial and corporate strategy and assist in the implementation of streamlined accounting, procurement, and IT processes to cut costs. They can also boost revenue and improve operational efficiency, which can help them increase the value of their assets.
Contrary to stock investments that can be quickly converted to cash, private equity funds usually require a large sum of money and could take years before they are able to sell a target company at an income. This is why the sector is illiquid.
Private equity firms require previous experience in banking or finance. Associate entry-level associates are responsible for due diligence and finance, whereas junior and senior associates are accountable for the interaction between the clients of the firm and the company. In recent years, the compensation for these roles has increased.
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