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Working at a Private Equity Firm
Private equity firms invest in businesses that are not listed publicly and work to grow or turn them around. Private equity firms raise funds in the form of an investment fund that has a predetermined structure, distribution waterfall, and then invest it in their chosen companies. The fund’s investors are known as Limited Partners, and the private equity firm acts as the General Partner, responsible for buying and selling the funds to maximize returns on the fund.
PE firms are sometimes criticized as being ruthless in their pursuit of profit however, they usually have an extensive management background which allows them to enhance the value of portfolio companies through operations and other support functions. For instance, they can guide new executive staff through the best practices for financial and corporate strategy and help implement streamlined accounting procurement, IT, and processes to cut costs. They also can find ways to improve efficiency and increase revenues, which is one way to improve the value of their investments.
Unlike stock investments which can be converted in a matter of minutes to cash however, private equity funds typically require a lot of money and could take years before they can sell a target company at profit. This is why the industry is highly illiquid.
Private equity firms require previous experience in finance or banking. Associate associates at entry-level work mostly on due diligence and financing, while junior and senior associates concentrate on the relationship between the firm and its clients. In recent years, the pay for these roles has risen.