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A private equity firm takes an ownership stake in a company that isn’t listed publicly and seeks to turn the company around or to grow it. Private equity firms raise money in the form of an investment fund with a specific structure, distribution waterfall and then invest it into the companies they want to invest in. Limited Partners are the investors in the fund. Meanwhile, the private equity firm is the General Partner responsible for purchasing, selling, and managing the funds.

PE firms are often critiqued for being uncompromising in their pursuit of profits, but they often have an extensive management background which allows them to enhance the value of portfolio companies through operations and other support functions. For instance, they could guide new executive staff through the best practices in financial and corporate strategy and assist in implementing streamlined accounting procurement, IT, and systems to drive down costs. They also can identify ways to improve efficiency and increase revenue, which is one way to increase the value of their investments.

In contrast to stock investments, which can be converted in a matter of minutes to cash however, private equity funds typically require a large sum of money and can take years before they are able sell a target company at profit. This is why the business is highly inliquid.

Working at a private equity firm typically requires prior experience in finance or banking. Associate positions at entry level focus on due diligence and financing, while 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.