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A private equity firm buys an interest in a company that is not listed publicly and works to turn the company around or increase its size. Private equity firms raise money through an investment fund that has a clearly defined structure, distribution waterfall and then invest it in their chosen companies. Fund investors are known as Limited Partners, and the private equity firm acts as the General Partner responsible for purchasing and selling the target companies to maximize the returns on the fund.

PE firms can be criticised for being brutal and seeking profits at all cost, but they have vast experience in management that allows them to boost the value of portfolio companies by enhancing operations and supporting functions. They can, for instance help guide a new executive team by providing the best practices for financial strategy and corporate strategy and assist in implementing streamlined accounting, IT, and procurement systems that reduce costs. They can also increase revenue and find operational efficiencies which will 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 lot of money and may take years before they can sell a target company at a profit. This is why the market is extremely inliquid.

Private equity firms require previous experience in finance or banking. Entry-level associates work primarily on due diligence and financing, while junior and senior associates concentrate on the relationship between the firm and its clients. In recent years, compensation for these roles has risen.