Private Equity careers can be rewarding and lucrative. Assuming you have the analytical and networking skills to be considered for a role, they will be competitive. The majority of private equity (PE) firms are much smaller than investment banks, often with ten or fewer employees.
CFA Institute provides a general definition of the industry, “Private equity operates with investors and uses funds to invest in private companies or buy out public companies. By doing so, general partners can obtain control over management and other operational changes to increase profitability in hopes to later sell at a successful rate.”
Working with their portfolio companies, Private Equity firms focus on efficiency and cost management to exit profitably and don’t flip their investments quickly. They will often keep a company in the portfolio for five or more years.
PE firms have limited partners (LPs) and general partners (GPs). LPs include investment companies and wealthy individuals who invest their money with the firm. They are investors who are not engaged with the company on a day-to-day basis. GPs are the members of the PE firm who are responsible for daily operations.
PE firms also have different approaches they can take when investing. According to the article, the three main strategies are:
Venture Capital
This term may sound familiar in the startup space. Most startup companies need capital to fund future growth as they mature through their life cycle.
Growth Equity
These companies are already successful but need more liquidity to grow. These investments are often long-term in nature.
Buyout
As the term implies, these companies are struggling and are being sold to turn them around.
Private Equity careers typically start with entry-level associates. These people usually have, at minimum, two years of experience in the investment banking industry. Often, investment bankers look at PE firms as the next step in their career, and they can quickly advance up the ranks. Let’s look at the different roles in PE.
Junior Associate/Analyst
These roles familiarize the employee with the process by working with more senior people on data review, due diligence tasks such as interviewing stakeholders at prospective portfolio companies, and financial modeling.
Senior Associate
These employees can now take on additional responsibilities and participate in a deal from the beginning to the end.
Vice President
At this level, the role becomes more focused on client relationships, negotiations, and day-to-day oversight of the associates. After completing hundreds of deals, some VPs start their own PE firm.
Managing Director
Directors focus on facilitating deals and raising funds, including final negotiations and major company decisions. The execution aspects of deals are delegated to associates and vice presidents.
Partner
The top role at PE firms is partner, and they spend a lot of their time working with LPs to provide funding. They also focus on the firm’s reputation to attract top talent and large deals. Of note, they are expected to invest part of their own wealth into the firm.
Private Equity careers require the willingness to work long hours, strong problem-solving abilities, and critical thinking. Of course, financial modeling, acquisition analysis, and market research capabilities are also required. In addition to high salaries, many in the banking industry prefer the flatter hierarchy at PE firms, where they are more involved in decisions from day one.
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