From employment, private equity careers manifest itself ambiguously.
In this post, I will clearly distinguish the concepts of work in Private Equity Career and Equity Research Career.
This article will help you determine the difference between these professional straight ions.
Work in the era 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):
Alright. Let’s start with the beginning. What is private equity?
It’s a general financial term that we use to describe any type of funds you can think of that can be used to pool resources from investors. Said resources will then be employed to buy stakes in different companies.
If you’re also wondering what is private equity and how does it work, that’s also a fantastic question to ask.
As you might have already understood for yourself, private equity companies are, of course, private.
This, in essence, means they are run and owned by the same people who founded them, by their managers, or sometimes by a small clump of investors. At the same time,
private equity companies are not traded on the stock market - which is what makes them private and not public.
What do private equity firms do? - A private equity company buys smaller companies that might be somewhat struggling or, if they are not struggling that have the potential to grow in the future. The private equity company gets them out of financial trouble, grows them, and resells them to another company. Or makes them public in any way they can.
Do you want an example in case you’re wondering how do private equity firms make money? If you are already in the industry, you probably know many. But if you’re not, you might still have heard of the Carlyle Group. They became one of the most famous private equity firms in modern history when they were called out by none other than Taylor Swift.
As the media reports, the singer’s former manager, backed up by the Carlyle Group, owns all her music catalogue and was trying to stop her from playing her own songs. This would have been a legal battle played backstage except that Swift made it public. As a result, crowds of fans as well as American senators turned on private equity firms and their practices. But are their practices bad? Let’s look at some types of private equity to understand better.
Before you can even start to think about any private equity careers, you have to learn what the different strategies of private equity are. And that’s where you can count on me! If you want to learn more, or simply have questions that you want answered, you can also take the BIWS ‘self-learning’ financial training program. It’s easy, fully downloadable, and you get a certification when you finish!
This means investing in small companies or startups that have close to no profitability. The goal here is to generate return by growing this asset and then profiting if the exit is successful enough.
Private equity vs venture capital - taking into account what I’ve just said above, it’s important also to note that venture capital is considered to be a strategy when it comes to private equity firms.
However, don’t confuse private equity firms with venture capital firms!
A private equity company can buy another company from any industry it sees fit. A venture capital firm can only buy startups from within clean technology, biotechnology, and technology, which makes them somewhat limited.
As the name suggests, this private equity strategy refers to pooling all capital from investors and directing it toward real estate properties. The strategy in itself comes with four sub-strategies you need to know about if you’re interested in private equity careers or if you want to work as a real estate private equity analyst:
This type of investments are directed toward mature companies that have proven business models and are looking for capital to enter new markets or to finance their new acquisition. We call this growth equity.
This situation allows a company to take on debt capital that will then give its lender the right to turn into an owner or a leader if that loan has not been repaid on time. Or if it was not repaid in full sum.
Any company that wishes to embark in mezzanine financing has to be respectable in its own industry, must have an already established product, and a profitable expansion plan.
Also known as LBOs, they are typically conducted when a company has already borrowed a large amount of money in order to acquire yet another firm. This is when a private equity company steps in for a buyout if they believe there is value in managing that company for a certain period in time.
This investment strategy asks for capital to be invested in other funds and not in bonds, stocks, or securities. In this way, investors get a diversified and more secure portfolio with a lower risk.
If you are familiar at all with the financial lingo or literature, you might have already encountered them under the name ‘distressed private equity.’
Special situations funds are meant for companies in need of a restructuring or that find themselves in an unusual set of circumstances. The investments will yield a profit out of that change in valuation that results from the special situation.
Knowing the theory is important, but I am well aware of why you’re here. You want some answers. So let’s start with a simple question.
What is it like working for a company owned by private equity?
This question is the same as asking what’s the difference between working for a public and a private company.
Of course, it all depends on you and what you do. Meaning at what level you currently find yourself on. The second thing you must be aware of is what exactly is the private equity firm planning on doing with your company. If you are in the stage where they are growing it, you should be fine. However, if they plan on selling it, you will have new bosses. If they dissolve it, you will need a new job.
But how about if you want to get into private equity?
I have one word for you.
Yes, that’s the hard truth. Private equity is one of the toughest branches of investment to break into. And most of that is due to the candidates not having the right background as per the requirements.
Let’s start with your education.
Private equity careers begin with a very solid educational background. What does that mean?
This is a must if you want this type of career. Please be aware that a bachelor’s will not be enough for this job. If you already have a bachelor’s in finance or are thinking of getting one, the masters needs to follow it!
The reason why I mentioned the university is extremely important. I could have just told you that you should get a masters in finance, but no.
The reality is that private equity firms only select candidates that have degrees from certain universities. They include Harvard, Oxford, Cambridge, Wharton, HEC & ESSEC, and INSEAD. They won’t be picky whether you studied in Europe or America, but they will need you to have graduated from one of these universities.
The Chartered Financial Analyst qualification requires four years of relevant experience in this field and three tough levels to be cleared before you can get it. Therefore, it’s not for everyone. But you will need it if you have your mind set on private equity careers.
These are additional qualifications that are not mandatory but will look immensely good on your resume. Go for them!
· Candidates who aim to latch on these highly attractive private jobs are expected to show solid work ethics, display multi-tasking abilities
· They should be able to work efficiently both as an individual and as part of a project team and work with the least amount of supervision
· They must have robust general knowledge about various industries, finance, accounting, and other financial concepts
· They are expected to show tactical and original thinking abilities
· They should have outstanding communications skills (both written and verbal)
· These candidates should exhibit good academic aptitude, strong quantitative skills (which includes financial modeling skills and valuation skills)
· They should have a positive attitude and should readily accept responsibility and accountability for projects
· They are expected to be well versed in Microsoft Office suite
· They should be open to travelling in both domestic and international sectors on short official visits
. Due Diligence skills
Most PE firms prefer candidates with strong academic background and at least one to two years of relevant experience.
MBA graduates from reputed business schools are given preference.
Excellent communication skills (both written and verbal) is an absolute pre-requisite as a private equity job is a client-facing job.
So now that I have mentioned the skills required for getting private equity career in detail, let me synopsize it for you so that you can prepare yourselves for these kinds of jobs:
As I mentioned above, you must have adequate knowledge about the finance sector and the private equity industry. Relevant work experience is also of immense help as being a part of the finance industry will increase your possibilities of getting an excellent job in PE firms.
Most reputed private equity firms prefer to hire aspirants who have experience of working with smaller private equity firms or financial institutes.
A significant chunk of your time at a private equity firm will go in analyzing enormous pieces of financial data.
You will be expected to carry out various types of complex analyses on sheets and sheets of financial data.
Though most private equity firms have internal training programs, it’s always a good idea to hone up your financial analytical skills and strengthen your CV before you apply for these jobs.
You could visit our previous article ‘4 ways to learn financial modeling in excel’ to understand ways in which you can increase your knowledge in financial analysis.
Also, it will help to improve your research skills and increase your understanding of various sectors or industries.
Having explained what private equity firms expect from prospective candidates and how candidates should prepare themselves for these high profile high paying jobs, I’d like to make it amply clear that this job is not for the feeble-minded.
It entails long gruelling office hours, hours and hours in front of excel sheets, extensive travelling, negotiating with aggressive investment bankers and lots, and lots of stress.
So for young graduates with no work experience, I would always advise you first to make sure you fit the bill for a private equity job. Decide if this is really what you want to do.
Do not run behind it because your friends are running behind it.
If you really want this job, then prepare yourself for it methodically.
Do not directly gun for the biggies in the industry. Instead, target smaller private equity firms where you can learn and grow quickly. Once you have the basics right, then you can target the big firms.
Finally, I hope this article helped you in understanding the world of private equity, and I would like to wish you all the best in your quest for that coveted job as a senior associate in these companies.
Of course, for Managing Director or Partner and other senior roles, you need to focus on networking and human relationships.
As we’ve already seen, private equity firms are tough hires. In other words, they are extremely picky with their candidates and the requirements are through the roof, so to say. So who do they hire then?
Alright, so there is absolutely no hiring if you don’t have banking experience? I’m so glad you asked!
First of all, I need to state this outright because I want to be as clear and honest with you as possible.
If you don’t find yourself in one of the categories I mentioned above, you could still aim for private equity careers. But it is not very likely you will get a job at one of the firms.
Don’t get discouraged! I am not trying to push you away from private equity careers!
But remember what I said in the beginning. It’s all about background.
Your education is extremely important. You absolutely need a masters degree in finance, an extra certification, to go through a private equity internship, and the BIWS training program.
But do people get hired without such a background? Sometimes.
Outside of the categories I mentioned, people who have private equity careers come from the following circumstances:
Here’s the most important thing - please be realistic about your chances!
Which brings me to this.
This is, without a doubt, one of the most alluring branches of the financial domain. If not for the work in itself, which is quite interesting, then definitely for the money. Most firms within this industry are ready to pay top dollars. Plus you get a bonus and incentives, which means you will be earning the big bucks straight from year one.
But, as we’ve already seen, the private equity career path is not an easy one. The education alone takes years and years, it’s very difficult to get through and is extremely expensive. Apart from that, private equity exit opportunities exist only for people with mad skills.
So here are my best tips for securing a position within this industry.
Ok, those were two pieces of advice in one, but I like you. So, you’re welcome.
What does that mean?
The traditional way of getting a job in the modern age, as I’m sure you know, is to upload your resume onto every platform that will take it - monster.com, LinkedIn, and so on.
Forget about that.
Most private equity firms don’t even have HR departments. They don’t need one seeing as the competition is so fierce and they only hire the best of the best. This is not a game. Why would they bother with LinkedIn?
Think about it. It would be like trying to buy a very expensive car and going on Amazon to find it. No, you need a dealer.
And that’s exactly what headhunter companies are.
But here’s the trick. They won’t come to you. In reality, you have to initiate contact with the headhunting company.
Send them your resume and cover letter and maintain contact!
Don’t let them forget about you, but don’t be too persistent. Find that perfect balance between being on their radar and not seeming pushy.
There’s a trick here. First of all, you must understand that private equity firms are not interested in hiring college students. Not even college undergraduates or graduates. Not even if you are attending a prestigious college such as Yale or Harvard. They simply want someone with experience. It’s ok. Learn to deal with it.
However, you can bypass the system so to say if you apply for a private equity internship. They are vital.
The main purpose here is to show later potential employers that you are not just some college graduate who is looking for some private equity entry level jobs. You already have experience. You’ve been out there and you’ve done it!
I don’t have enough words to stress how important this is. Private equity careers are not something you build in a day. And a job in private equity is not something you get over night. The reality is far from that.
Most private equity firms start their interview process in January for the candidates they need the following July.
Yes, you read that right. It will be a full year and a half before you start the job, even if you get it!
Apart from that, the interview process in itself lasts between 3 and 6 months. And it has 12 to 15 steps.
The interviews are very long and fastidious and they include every single type of question imaginable, as well as drug tests. Please be aware of that! And since we’re on that topic, let’s talk a bit more about interviews.
As I mentioned above, this will not be easy. The interview will be complicated and lengthy, so you can expect the questions to fall into one of the following categories:
Questions about yourself:
Questions about the industry:
Questions about clients and deals:
These won’t be questions per se. You will have to tell the story of at least two clients, the private equity due diligence that you did for them, if you found any mistakes there, and how much money you were able to save for them.
Here’s my tip - always offer critical views of all your clients in an interview.
That means, if you acted like a private equity firm, would you have bought them and why.
They will ask you these questions anyway, so surprise them by offering this perspective in advance.
Modeling tests and case studies:
There is no telling here exactly what you will be subjected to. Some candidates report that their paper LBO models lasted for a mere 30 minutes while others were tested for weeks at a time. Therefore, brace yourself and study hard
Real estate private equity interview questions:
We’ve seen what you need to do to ace your interview, but what exactly should you be aiming for? Here are the major companies you could build your private equity careers around.
Top Middle Market Private Equity Firms
Let’s take a look at a few actual jobs you can have when you go for a career in private equity and what they consist of. In this way, you will get a taste of what an investor does in this field!
As a private equity portfolio manager you will have to perform extensive research. Your end goal is the perfect investment decisions for the fund under your control. Meet with analysts and clients, check the markets, keep up on the news, and generally buy and sell as the market fluctuates.
You will need to provide human capital as well as deal flow. You will be an integral part of thesis validation when it comes to due diligence, investments, as well as 100 day teams.
As an investor relations specialist, it is your job to bring in investors and keep them interested in the firm. Yes, this is the big one! The most important and the most coveted position at the same time, so get ready!
Why tell you when I can show you? Here is a timeline I made especially for you of the negotiation and closing of a private equity deal origination.
Sure! But first, take a look at this. Here you have a simple diagram that shows you how a private equity fund works.
The structure of a private equity fund is that of a closed-end investment vehicle.
It starts as a limited partnership headed by a fund manager who also makes the rules and governs it. He is the General Partner and contributes 1% - 3%.
The rest of the investment comes from pension funds, universities, families, etc. They are the Limited Partners. Their liability is proportional to how much they have invested.
The investment period is between 4 and 6 years. Once the company that was bought has grown and can be sold, the profit or proceeds are distributed back between the limited partners.
We’ve reached everyone’s favorite part. Let’s do a lightning round of FAQs to make sure we have covered absolutely every topic you could possibly have in mind.
As we’ve seen, private equity firms invest directly into companies. They buy private companies or even a controlled interest in a public firm.
Hedge funds, on the other hand, are considered to be an alternative type of investment. They utilize pooled money as well as a series of other tactics to make sure their investors have returns.
The difference is, once again, all in investments. Private equity firms invest much of their own capital to buy companies that are privately held. On the other hand, investment banks are more of a middle man, so to say. They market shares that belong to public companies in a sell-side function.
Once again, as noted above, private equity companies, need to raise a certain capital to be able to invest in an individual company. When they do, they essentially buy out that company, they ‘take ownership position’ as we say in a more financial lingo and asses their control.
As opposed to that, an asset manager is the person who owns investments. Examples include bonds, stocks, partnerships, and more. As you can see, there is a certain amount of overlap between the two as well as grey areas, but they are definitely not the same thing.
Can you get a job in private equity as a consultant? It depends. If you have private equity consulting experience at a major firm, then yes, of course, your chances are solid! However, being a consultant at any other type of company considerably lowers your shot.
Yes, this can definitely be done. In fact, according to the studies done by a few recruitment companies, some 36% of all junior investment bankers turn to private equity. Why not you?
If you read this article carefully, as you should have, you might have noticed that I mentioned corporate development once before as an ideal possible background for private equity careers. Therefore, the transition should go well!
Does this happen? Well, it’s very rare, I can’t lie to you because I’m here to give you the facts.
Private equity firms will hire you based on your equity research background only if it makes sense for them from a strategic point of view. Meaning if they have their eye on a specific sector and they really need you and your expertise. Otherwise, this is a very uncommon move, so don’t bank on it!
The purpose of any Equity Research is to predict the future behaviour of the price of given security with the highest 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 teams can quickly and unexpectedly start adding interest points to the value of their shares, anyone has to know the state of the market.
The information about the developing crews and which ones are entering a protracted downward trend in business activity is always needed.
Private equity firms choose 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, teams operating in a low-profitable industry or industry with a long operating cycle will be less interested in the investor.
The rate of return on investments plays a vital role in the choice of an endowment object, and an experienced specialist must take this into account without fail.
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.
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, to decide on investing money in the development of the crew, Associate must analyze the presence of the following leading non-financially measurable indicators.
This is a competent 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.
The professionals in the Private Equity company 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 the 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, 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.
Many times youngsters, mostly fresh graduates coming out of MBA colleges who come to me for advice, the dream of getting opportunities in pe firm or venture capital jobs.
Their initial goal in life is to get a high paying job as a private equity analyst or a private equity associate with leading private equity firms.
But most of these youngsters don’t really know what a private equity firm does or what it takes to get a job with a private equity firm. They are drawn to this career path more for the money and glamour, which is associated with this profile.
So I’d like to take a minute to explain what precisely private equity firms do and what a private equity job-description looks like.
Private equity firms obtain capital from HNIs (high net worth individuals) and use it to invest and acquire equity stakes in other companies.
Key players in private equity are institutional investors and qualified investors who are willing to commit big sums of money for long time periods.
The average duration for any private equity deal varies from 5 to 7 years. After this period, the private equity generally sells out through an IPO (initial public offer) deal or through a stake sale to earn huge profits.
Leading private equity firms in the world include Goldman Sachs Capital Partners, KKR (Kohlberg Kravis Roberts), The Blackstone Group, Apollo Management, and Bain Capital. Key Indian private equity firms include Baring Private Equity Partners (India), Chrys Capital, Cipher Securities India Pvt Ltd, ICICI Ventures, and IDFC Private Equity.
So now that we understand exactly what a private equity firm does, let’s try to understand how private equity head-hunters define a private equity work description.
· Monitoring current investments under management
· Finalizing quarterly and yearly reviews of funds and companies in portfolio
· Create & update valuation models and projection models for portfolio companies
· Assist in due diligence, review & study of potential new investments
· Conduct detailed research on target investments and create fundraising collateral
· Research, transcribe & present industry studies to detect possible areas of future investment
· Prepare detailed information memorandums
· Review legal documentation and deals
· Build portfolio analysis & performance metrics
· Interact with senior members of private equity firms to acquire intelligence on existing &potential investments
· Complete additional duties as requested or allotted
OK...Now, let’s look at what desired skills and experience; private equity firms expect from potential or prospective candidates.
Tasks in investment banking include Deals pitching, Deals execution, and finding detailed information and helping Managing Directors in call preparation.
In contract with investment banking, work in private equity includes possible investment screening, deals execution to make investments, taking care of portfolio companies, raising funds, and managing to sell portfolio companies, which are also called exit strategies.
Investment Banks and Private Equity Funds are both rewarding career paths.
There you have it, a short guide on private equity jobs and investment banks jobs covering education, duties, management, work responsibilities, skills, and experience required.
I had a good time creating this post, researching the web for every little detail I could find.
Now, it's your turn to find the email address given on the company website and start applying.