From the point of view of employment, private equity careers manifest itself ambiguously.
Because of this, on this platform, there are players in this industry who do not quite clearly distinguish the concepts of work in Private Equity Careers and Equity Research Career.
This article will help you determine the difference between these professional straight ions.
Work in the rea of Equity Research is an analytical position. It has in mind the conduct of professional activities in the sifting of the stock market, which is often reduced to the sifting of securities.
Sifting of securities is a set of different actions. It usually consists of the following elements (phases):
- collection of data on a financial instrument (security);
- data processing in one of several ways;
- description of the data;
- conclusion, - the sifting of security.
What Is the Necessity for Equity Research Specialist in Securities Analysis?
The purpose of any Equity Research is to predict the future behavior of the price of a given security with the greatest accuracy.
Without analysis, investors (employees of Private Equity, which we'll talk about later) and traders will not have relevant information about the stock market, i.e. they will have no information realm for making managerial decisions.
Since the most promising crews can end in failure and small crews can quickly and unexpectedly start adding interest points to the value of their shares, anyone has to know the state of on the market.
The information about the developing crews and which ones are entering a protracted downward trend in business activity is always needed.
What Are Types of Sifting of Securities?
There are 2 main methods of securities sifting which include fundamental and technical analysis. An Equity Research specialist may belong to any of them.
A Fundamental sifting of a security is based on macro- and microeconomic, demographic, environmental, financial, and even psychological factors that affect the price of a share. Fundamental analysts follow the news. They rely mainly on information and can search for "insider" forecasts (illegal distribution of confidential information outside the crew).
A Technical analyst often works only with the price of a security. He follows the basic postulates:
- the price takes into account everything;
- price movement follows trends (prices form trends);
- history repeats itself.
From the point of view of an Equity Researcher in technical analyst, the price is the end result of the struggle between demand and supply, and what happens before that (that is why people buy and sell) does not matter.
Technical analysts are guided by graphs, indicators and other graphical sifting tools that allow you to identify the straight ion for price changes.
Each method of analyzing securities has advantages and disadvantages. Having tried both methods, analysts usually stop on one and go with it all the way.
A specialist in Private Equity has, on the one hand, a very similar functionality with an Equity Researcher, and, on the other hand, a completely different competence.
This Private Equity specialist belongs to the stewardship unit and makes a decision, implementing it.
Employees of Private Equity are also called Associates. They are fully aware of such endowment processes as "Execution" and "Transaction" and straight investments.
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What Is Straight Endowment Definition
Straight investments are risky investments of money into the crew, and the main task of such a step is to support a profitable business idea with funds.
This allocation of capital is a financial aid to the enterprise in its further development on terms that will be beneficial to the investor.
At the same time, new partnerships are created between the depositor providing his funds and the firm that needs them. Such placement of funds is risky, however, the profitability of such investments significantly exceeds the average.
The main objective of Private Equity specialist is to evaluate the following indicators for making a decision to invest in any crew:
- the possibility of financial growth of the enterprise;
- the openness of the crew, clear development strategy;
- the effectiveness of a team of managers ready for productive dialogue;
- the absence of conflicts with both local and federal authorities;
- the crew regularly pays taxes, there are no violations of the Civil Code;
- developed corporate culture;
- the crew has a clear vision of the competitive environment, knows its positive side with respect to its rivals.
Unlike the analyst, which belongs to Equity Research segment, who must study the request of the issuer of securities, gets the necessary information about the segment in which the crew operates, about the level of stewardship in it, as well as to learn the individual features of doing business in this area, the specialist in Private Equity operations must, based on the information provided, decide whether he will invest in the crew or not.
Moreover, in straight investments, associates communicate not only with customers but also with legal and other necessary support services within their endowment firm. Most associates have an economic or financial-economic education.
The Associate does not do routine surveys; he has the opportunity to be more involved in negotiation processes, to engage in independent financial modeling.
The Associate also negotiates with the stewardship of the crew. These include the objects of investment, the terms of cooperation, on the basis of which legal documentation will be drawn up.
The due diligence procedure, that is, the verification of the organization, the preparation of legal documentation, are included in the straight functional duties of a specialist in such a process.
Its final competence and purpose are to submit to the Endowment Committee all the necessary documents that are needed to make a positive decision.
The goal of managers of private equity firms is to achieve an increase in the value of a block of shares that become their property.
To achieve this goal, the Association must clearly follow the following criteria for choosing a crew - an endowment object – for making private equity investment:
Criteria for Selecting Crews for Private Equity Careers
#1. Stage of development
Private equity firms make a choice in favor of the crew, which is at the stage of expansion. Young firms that have recently started to operate or are just planning to open, are unattractive for depositors.
About 90% of associates are chosen by those firms that are at a mature stage of their existence. Below are the statistical data on the implementation of the crew's choice by private equity funds through associates.
The birth stage. If the existence of the organization is up to 5 years, about 43% of investors are ready to invest their funds in support of the crew's development.
The development stage. When the selling capacity increases by 15% per year about 93% of private equity funds will want to place their capital.
The period of maturity. When selling capacity increases by less than 15% per year, about 71% of private equity investors consider financial investments in the crew profitable.
Investors' interest remains at the same percentage level during the flourishing stage of the enterprise (when its sales again increase by more than 15% per year).
Only 7% of investors are ready to support the crew at the stage of recession.
The FMCG (fast-moving consumer goods) sector is preferable for equity firms raises, crews operating in a low-profitable sector or sector with a long operating cycle will be less interested in the investor.
The rate of return on investments plays an important role in the choice of an endowment object and an experienced specialist must take this into account without fail.
#3. The amount of investment
The next indicator, which the specialist pays attention to, is the amount of money required.
Each organization that finances business has its own acceptable volume of straight investment. 36% of them consider the maximum amount of investments to be 30 million US dollars. 29% of private equity funds are ready to place up to 50 million US dollars in the enterprise.
The boundary of 10 million is possible infusions for 21% of similar organizations. 14% of depositors have cash of up to 40 million US dollars.
#4. Level of control
Provide a blocking stake may require 21% of endowment funds.
This means that the depositor will cooperate only with the firm that will transfer to him from 25 to 49% of the votes in the shareholders' meeting, that is, in the supreme governing body.
Such private equity funds show interest in the crew's management. At the same time, senior managers will be responsible for the functioning of the firm.
Also, in order to make a decision on investing money in the development of the crew, it is necessary for Associate to analyze the presence of the following main non-financially measurable indicators.
This is an effective team of employees, rapid growth, and a profitable competitive strategy.
The goals and objectives are the same. The main one is to provide the endowment crew with the right endowment object with the opportunity for growth and development, thereby increasing the value of its shares and subsequently the profit of the investing entity.
Differences in the function of Private Equity Jobs and Equity Research Jobs
The specialist in the Private Equity fund should be able to help the head of the firm to find the right decision aimed at the rapid growth of the enterprise, get an evaluation of the endowment project to attract other investors, or assist during the acquisition of shares of other firms.
At the same time, the analyst in Equity Research works only within his firm and has practically no contact with the investee, with the rare exception of obtaining insider information.
For a specialist representing a straight investor, it should not be an obstacle to the fact that the structure of the organization is complex or it consists of a variety of offshore crews that may also not be transparent from a legal point of view.
The level of knowledge in this industry should be at the level with leading lawyers of the firm.
The specialist in Private Equity should be aware of the rules of accounting according to international standards and advise the endowment object to restructure its internal accounting policy to record these standards if such a transition is economically feasible.
Also, an Associate must necessarily facilitate the conduct of an international audit.
A transparent system of accounting and formation of stewardship reporting will give a clear idea of the state of solvency and financial stability of the firm's investment.
And already when the specialist received the profits for the endowment fund, very often, after the project is completed, a new cooperation begins with the same endowment objects for other projects.
Thus, Associate should also have the ability to conduct business relations on a long-term basis, and be able to build effective activities that will be based on trust.
It should be summed up that an associate belongs to a stewardship position and may have several analysts at his own initiative, at the same time, the function of the analyst has a different scope, and the responsibility is much smaller.
However, these positions do not mutually exclude each other but supplement.
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