A guide to private equity careers

A guide to private equity careers“Private equity” comprises investors and funds that put in millions or billions of dollars for the acquisition of stake in companies that are in need of capital and restructuring, that are already bringing in revenue, and that can be made more profitable. These investments are not noted in a public exchange. PE firms may buy a stake in a target company or go in for an outright buyout. If they buy a controlling share, they may bring in new management or ideas.

PE firms also engage in “leveraged buyouts” (LBO), where it borrows additional funds to improve their buying power, providing the target company as collateral. The leading private firms (KKR, TPG, Blackstone, etc.), along with companies that are involved in middle-market transactions (smaller deals), control one trillion dollars of capital. PEs exist as partnerships, with a general partners, who provide business expertise, and limited partners, who provide funds.

Private equity is a prosperous segment of the economy that offers among the most lucrative careers in finance. We find out the reasons why private equity makes a good career choice, besides other aspects of PE.
 

A guide to private equity careers

 

Why PE?

The work is interesting, though demanding, with long hours. As part of your activities, you will interact with not only bankers, consultants, and legal representatives, but also CEOs and top management teams though you may still be at a junior level. You will get to know how businesses work at high levels.

As with other finance career paths, the remuneration is excellent in PE. Apart from basic pay and bonus, PE professionals receive an incentive known as “carried interest,” which is a direct share in their company’s profits and a substantial part of their earnings. PE professionals in the US earn carried interest before they reach director level and after they reach that position in European and Asia-Pacific firms.
 

Where do Private Equity firms recruit? And whom?

Private Equity firms hire mainly analysts from:

  • bulge-bracket investment banks
  • middle-market banks, and boutique banks
  • PE professionals from other firms
  • undergrads for junior roles in emerging markets

It is difficult to break into private equity if you are a recent graduate or postgraduate with little experience in the field. PE firms also hire from reputed management consultancies, and from elite, finance-focused b-schools (Harvard, Stanford, Wharton, and Booth in the US; LBS, Oxford, and Cambridge in the UK; and INSEAD, HEC, and ESSEC in France, for example). PE firms in the US see more value in hiring MBAs than firms in Europe.

Big PE firms such as Blackstone, Carlyle, and KKR hire investment bankers with two or three years’ experience because banking and PE require similar skills and bank candidates’ experience helps teach them the required skills more easily.

Bankers from second-year analysts to first-year associates are preferred for their expertise in financial modelling, transaction management skills, strategic thinking, industrious nature, and sector knowledge.

Elite PE firms prefer candidates from big investment banks, such as Goldman Sachs and Morgan Stanley. You also have a good chance if you are a junior strategy consultant at McKinsey, Bain, or BCG. Some firms such as Bain Capital prefer strategy consultants to bankers. Unconventional backgrounds such as equity research and corporate strategy may also work.

Corporate lawyers, science PhDs, IB associates with MBAs, and mid-career corporate finance professionals are seen as non-traditional candidates and may find entry into PE difficult unless they are outside the US/UK, in India, Russia, or Central and Eastern Europe; work in a closely related field on transactions (Big 4 valuation/advisory, consulting, direct lending, corporate development); or are aiming for smaller PE funds.
 

Key skills required for private equity jobs

A degree, even from a top school, carries only so much weight and is only a qualification that helps in the initial screening process. Nevertheless, your degree should show that you have analytical ability; usually, finance and science degrees are favored. A strong professional background in investment banking, strategy consulting, corporate development, or restructuring is what recruiters seek.

Important skills for an associate include:

  • knowledge of specific industries
  • operating experience
  • ability to develop and analyze spreadsheets
  • financial modeling/analysis skills
  • insight into how businesses are doing
  • how management interventions could help businesses
  • ability to research markets, competition, customers, etc

If you speak a couple of European languages, it is a plus. It is useful to know German, French, Italian, Spanish, Dutch, or Nordic and Eastern European languages. People skills and a cool head to handle deal pressure are also among important requirements.

It would also help to show that you’re a well-rounded person. For example, if you have done well in athletics, you should talk about it. Also show your capacity for leadership and entrepreneurship. If you have been a club president or organized a charity, make a mention.
 

When do private equity companies recruit?

For traditional candidates for PE jobs (IB analysts, etc.), there is an on-cycle and an off-cycle recruitment process, explains mergerandinquisitions.com. The on-cycle process for analysts at big PE and boutique firms runs October-January/March in New York. If you are selected, you will only begin work in August of next year.

The off-cycle process is meant for roles outside New York; roles for anyone who is not working at an investment bank; and roles at smaller firms. Off-cycle takes more time than on-cycle, but you start work immediately. In London, firms start the process in January, not in October, and present “start immediately” and “interview in advance” options.

Tests in the on-cycle process are time-bound and quick. Unlike in on-cycle, tests in off-cycle require more thought and preparation of a real investment thesis. Outside the US and the UK, too, a more or less similar pattern of case studies/modeling tests and interview questions is followed. Headhunters call the shots in the on-cycle process.

Undergrad and graduate students are often advised to start networking well before they start their job hunt.
 

PE tests, interviews

Case studies and modeling tests evaluate your ability to work under pressure. Tests may be very quick (30 minutes, creating a simple LBO model); intermediate tests (one to three hours, making a real LBO model); or take-home tests (a few days to a few weeks; writing a real investment thesis).

PE interview questions can also be categorized: Fit (questions relating to PE, the firm, your long-term goals); market/industry (about industries/companies that interest you); technical questions (similar to IB interview questions); and deal/client experiences (how you added value to a deal). Many candidates put too much focus on technical and modeling tests and too little on questions about fit, etc., which are equally important. Firms will test your business sense and “commerciality.”

At interviews, it would help if you could say you are interviewing at other firms, too. Headhunters become more interested in you the moment you say you’re also talking to others.

It pays to research the firm interviewing you. Analyze a couple of its investments and see what it did right (or wrong).

The typical candidate who passes interviews typically works for a big bank in a solid industry group, is from an elite university, and has a great GPA.

Prepare for the CV interview round for questions such as the relevant numbers on transactions mentioned; a deal that would be most relevant to a PE interviewer; why you are interested in PE/interviewing firm; which companies that you’ve worked with would be good to invest in; mechanics of the LBO model; importance of EBITDA (earnings before interest, taxes, depreciation, and amortization) and FCF (free cash flow) for PE investors; your research methods; importance of management for PE; interesting deals in the news; where you see yourself in five years; and what motivates you.

There will also be a likeability test to see if your future colleagues would want to work with you. This may be at a dinner or drinks, but be aware that though the atmosphere may be informal, every answer of yours will be scrutinized.
 

The perfect CV

A perfect CV for recruiters’ eyes should consist of only one page. A narrative style should be discarded for bullet points, with four/five bullet points about your background that are relevant to PEs; academic qualifications; deals at your investment bank or Big 4 corporate finance; and personal interests. Be minimalistic: don’t sign and never send a photo.
 

Strategy review

If you fail to win an offer despite your best efforts, ask yourself whether you told your story well; whether you did well on the technical parts; and whether you have enough experience. Work to correct your weak points. Find out exactly what PE funds are looking for, the ideal background that would win offers, and what your new strategy should be.

Also read:
Best MBA programs for private equity
Private equity in India: What went wrong?
– How to get into private equity (link coming soon)
 
References: 1, 2, 3, 4, 5, 6, 7, 8, 9


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Sameer Kamat //
Sameer Kamat
Founder of MBA Crystal Ball. Author of Beyond The MBA Hype & Business Doctors. Here's more about me. Connect with me on Google+ | Twitter | Facebook | Linkedin
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4 Comments

  1. Deepak Adiga says:

    Hi,
    I have completed my Information science engineering with 66%. I have 2 years of work experience. I am planning to do MBA in finance. does the percentage in be have to be 70 and above. With my current percentage can i get any reputed colleges in Canada.

  2. Mayank Gupta says:

    Hi Sameer!

    I graduated from SRCC with a B.Com(H) degree in 2017. Graduation score was average as per my batch performance.
    I am currently working in the IB back office of Goldman Sachs.
    What do you think I should do in next 2 years to increase chances of an intake at Harvard Business School?

  3. Veera says:

    Hi Sameer!

    Would like to hear your opinion on my situation. I am considering a part-time Executive Master’s programme in an European top ranking university’s Innovation program. I have 11 years of work experience in advertising and data-driven marketing, but would like to shift my career more towards digital innovations. This program is equally expensive with MBA and I would have to finance it myself. I have good salary, but no savings and do not know for sure if I am able to handle the costs including flights and habitation. This is a fourth year in row I am considering this particular school and second when I am thinking this particular program. I have explored all the top schools and their part-time executive programs but this one seems to be closest to the goals I am aiming to. I am looking for knowledge and practice about innovation projects and at the same time would like to gain international perspective and experience which this program offers. I already have one Master’s Degree from my home country but feel that I should at least now take a big step to get my career on the right track. I am already 40 years old, so I also feel that even though my financial situation is not optimal right now, time is running out. I have tried to find a new job to get things right, but it seems that my long experience in creative content will only land me on that kind of jobs, even thought I have variety of skills. I would like to get my head together with other ambitious people I could learn from and vice versa and increase my understanding of business and innovations.

  4. Sameer Kamat says:

    @Deepak: Read this to understand what admission officers look for in applications: https://www.mbacrystalball.com/blog/2015/11/23/what-admission-officers-in-business-schools-want/

    @Mayank: Here’s how to get into Harvard Business School:
    https://www.mbacrystalball.com/blog/2016/01/18/how-to-get-into-harvard-business-school/

    @Veera: Part-time degrees are expensive, but don’t generally give the same bang for the buck. So, if you are financial constrained, I wouldn’t recommend stretching your funds to attend the program. The bigger and immediate concern to address is why you don’t have any savings even after working for such a long time.

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