What is Private Equity
Private equity refers to ownership capital, from funds and/or investors, which is invested in start-up, growing, or established companies that are not listed on a public exchange. A private equity investment in a public company can result in the company being taken private if a majority stake is acquired, often through a leveraged buyout (LBO). PE firms invest in private companies, sourcing investments from institutions like pension and sovereign wealth funds, and they aim for returns through exits such as IPOs or sales to other firms. Private equity (PE) is one of the most coveted career paths in finance as it can be highly lucrative, the work is interesting, and it typically offers a better work-life balance than investment banking.
Team Structure and Hierarchy
- Private Equity Analyst: Entry-level position focused on data analysis and financial modeling.
- Private Equity Associate: Works independently on deals, participates in decision-making.
- Private Equity VP: Manages client relationships and presentations.
- Private Equity Senior VP/Director: Responsible for fundraising, final negotiations, and strategic management.
Why Work in Private Equity
There are several key benefits from a career in private equity. Compensation in the private equity space is generally highly competitive. Additionally, the work often involves various aspects of the deal process. Although candidates should not expect a standard 9 to 5 schedule, the work-life balance may be better than that in investment banking, depending on the individual company.
In an interview, you are likely to be asked why you want to work in private equity. Funds aren’t expecting applicants to be experienced investors, but they expect you to have done your own research. You should be able to explain why you prefer to work in private equity rather than venture capital or a hedge fund.
Key Skills Required for Private Equity
Essential skills for a private equity career include:
- Financial modeling and writing
- Assessing companies’ commercial potential
- Business and operations knowledge
- Presentation and relationship management
- Critical thinking from both micro- and macro-economic perspectives
Who Do Private Equity Firms Hire?
Private equity firms usually look for candidates with a strong academic background and experience in business strategy, a specific sector, or M&A execution. They seek individuals who perform well and align culturally with the team. The hiring process is often lengthy and involves approval from most mid-level and senior partners of a fund or regional office before extending an offer.
Private Equity Resumes
A resume is the “first impression” for any professional role. PE hiring managers are very busy and will skip over resumes if they don’t find what they need in 30 seconds. The ideal PE resume should:
- Include educational credentials such as university, GPA, and SAT scores briefly.
- Focus mainly on relevant investment banking and deal experience.
- Mention previous internships and jobs only if they are relevant.
- Briefly mention skills, activities, and interests.
Prepare for the Private Equity Recruitment Process
Funds do not expect candidates to be expert investors. However, they require a clear understanding of why you would choose private equity over other types of finance jobs. Candidates must have knowledge of financial modeling, leveraged buyouts (LBOs), and mergers & acquisitions (M&A). LBO modeling exercises are crucial; although candidates may not always need to create a full model during interviews, they will be regularly assessed on their understanding of LBO mechanics and the broader assumptions necessary for business valuation.
Top Tips for PE Recruitment
- Develop comprehensive deal narratives showcasing technical expertise and strategic thinking.
- Be specific about career goals.
- Demonstrate thorough research on the fund and seriousness about joining them.
- Emotional intelligence is critical; successful PE candidates require a mix of EQ and IQ.
- Relationship building and getting buy-in from management teams are essential, especially as one progresses in their PE career.
- Networking is highly important; building relationships with experienced analysts who can provide headhunter referrals can be a significant advantage.
Common Mistakes in PE Interviews
- Be clear about what you are looking for. Funds will want to know you have done your research.
- Do not embellish CVs; anything added to the resume is fair game in an interview.
- Honesty is crucial; if you don’t know the answer or how to approach something, ask for assistance.
- Listen to the whole question and don’t answer before you have heard the whole question.
Private Equity Recruiting: On-Cycle vs. Off-Cycle
Private equity recruiting consists of on-cycle and off-cycle processes. On-cycle recruiting is organized and follows a set timeline, typically aimed at candidates from investment banking or consulting backgrounds. Off-cycle recruiting is less rigid and can happen at any time, usually concentrating on candidates with varied experiences.
The On-Cycle Recruitment Process
The on-cycle recruitment process primarily targets top associates from bulge bracket and elite boutique banks in an annual intake. The on-cycle recruitment process might start as early as a couple of months after analysts start at bulge bracket or elite boutique banks. This is typically July to October. Offers can be made for positions that start eighteen months to two years in the future. The process is often quick, and it’s important to impress the recruiter from the very start.
The Off-Cycle Recruitment Process
The off-cycle recruitment process involves middle market funds seeking associates, non-US roles, and positions where investment banking experience isn’t required. It typically fills immediate openings, allowing recruits to start within weeks rather than waiting 1.5 to 2 years.
Education Requirements
Private equity firms generally have stringent requirements regarding education and academic achievements. A bachelor’s degree in a quantitative field such as finance, accounting, mathematics, or physics may fulfill initial criteria. However, most professionals in the industry possess advanced degrees such as a master’s in finance or a Master of Business Administration prior to entering the field. Firms often seek candidates directly from MBA programs specializing in private equity at top business schools, as it is assumed that these individuals have several years of experience and have honed their analytical and leadership abilities.
Certification/Courses
Financial certifications and courses are another way to demonstrate dedication and earn an interview.
The Chartered Financial Analyst (CFA) qualification is widely recognized in the industry and can enhance an applicant’s resume.
Another relevant qualification is the Chartered Alternative Investment Analyst (CAIA), which focuses on alternative investments.
Financial Edge’s Private Equity Associate course is a micro-degree program that offers a deep dive into the world of private equity. The course is comprehensive, covering all aspects of private equity transactions, from foundational skills to advanced financial modeling and valuation techniques.
Private Equity Salary & Bonus
Salaries vary across organizations based on size, fund type, and seniority and typically include base salary and performance bonuses. Additionally, some employees may receive carried interest, paid once the invested company is sold or listed, usually years after the initial deal. The table below provides rough estimates aligned with seniority positions.
The following is a general guide applicable to the USA only. Compensation in Europe and other regions is typically lower. Nonetheless, the career progression and the corresponding increases in salaries and bonuses at each career stage are consistent.
| Position | Base salary & bonus | Share of carry |
| Analyst | $100,000-150,000 | None |
| Associate | $150,000-250,000 | None |
| Senior associate | $250,000-400,000 | Small |
| Vice president | $400,000-500,000 | Medium |
Private Equity Hours
Working hours in PE depend on firm size and deal flow but range from 60-70 hours per week at smaller firms to over 80 hours at mega funds. Hours do not necessarily depend on the employee’s seniority in the firm.
Conclusion
Pursuing a career in private equity offers numerous benefits, including competitive compensation, engaging work, and a potentially better work-life balance compared to investment banking. The path to success in private equity requires a strong academic background, relevant experience, and a clear understanding of the industry’s dynamics. Candidates must demonstrate essential skills such as financial modeling, business acumen, and relationship management. The recruitment process can be rigorous, with both on-cycle and off-cycle opportunities available. By preparing thoroughly and showcasing their expertise, aspiring private equity professionals can navigate the challenges and secure rewarding positions in this coveted field.
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