How difficult is it to break into private equity?
Students pursuing careers in private equity and hedge funds often ask me, “How can I break into the industry?”
Opportunities for people looking to break into the financial industry can pave the way to a lucrative career with many benefits. But to enter the field, students must be prepared for the enormous level of work and have a tough mental approach to rejection.
I likened the process to a high school student wanting to play for an NCAA D1 college, followed by professional sports leagues like the NFL, MLB or NBA.
Compare the numbers
Is this comparison too extreme? Let's look at the numbers. Less than 1% of the US population will play professionally in any of the professional sports leagues.
Let's take basketball as an example.
For eligible men playing NCAA basketball, the odds of playing at the NBA level are 1 in 362 or 0.3%.1according to 2019 NCAA statistics. Our calculation is as follows: NCAA participants of 18,816 divided by total NCAA selections of 52.1To put that into perspective, you are more likely to die (1 in 1272) then play in the NBA.
The odds of you getting a Private Equity job at a top 10 company are 1 in 300
As of October 2019, the size of the U.S. college population of students pursuing business degrees is 3.9 million.3ifølge National Center for Education Statistics.
For a student looking to break into one of the top ten PE firms, the odds are 1 in 300 or 0.33%. To break into one of the top 10 hedge fund firms, the odds are 1 in 147 or 0.68%.
Our numbers are calculated by dividing the total number of students majoring in business by the total workforce within the top 10 leveraged buyout or hedge fund firms.
The odds would be much worse if we used the number of vacancies per year within our top 10 focus companies. These odds are comparable or worse than playing any of the professional sports.
Less than 1% of the population that enters any field of competition is likely to compete at an elite level. In the highly competitive world of finance, such as hedge funds or PE, less than 1% of students break into one of the top 10 companies. The total headcount of the top 10 hedge funds by assets under management is 27,5004versus the 14,000 of the top 10 private equity firms.4
Breaking into the NBA is extremely difficult. So why should it be any different for competitive positions in the financial sector, such as investment banking, hedge funds or PE?
Top 10 PE firms with the largest assets under management
- Apollo
- Blackstone groups
- Carlyle Groups
- TPG
- KKR
- Warburg Pincus
- CVC Capital Partners
- Advent International
- Ex
Top 10 hedge fund firms with the largest assets under management
- Sort stones
- Millenniumbeheer
- Bridgewater Associates
- From Sigma
- Male group
- Citadel
- AQR Capital Management
- Elliott control
- Davidson Kempner Capital
- Renaissance
The solution: Start early to close the skills gap
University students studying business or finance must be aware of the reality and level of competition he or she will face. Being aware of this reality can help them better understand the level of work, preparation, commitment and responsibility required as they strive for highly competitive positions.
Just like in elite sports, you need to start early and have the right coaching and mentoring. For university students, it is important to prepare at the freshman level.
You need to learn the right technical and soft business skills that the job requires. Some of these skills include accounting, Excel, industry knowledge, financial statement modeling, and presentation skills.
One of the reasons many students are unprepared is that these skills are not taught at the college level. We find that many new graduates have a qualification gap, meaning it typically takes 12 months for them to enter the workforce to learn and develop.
The first 6 months on the job are very crucial as it is during this time that you start to build a reputation among your peers. Not having the right skills early in your career will cost you time and money as your performance review may yield average or low grades.
This could cost you thousands of dollars in lost performance bonus. Average or low performance ratings can be a barrier to promotion and exit opportunities. Just like in sports, if you don't perform at an elite level, you will be cut or sent to the minors.
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References:
- NCAA Reference: http://www.ncaa.org/about/resources/research/ estimate-probability-competing-professional-athletics
- National Security Council: https://www.nsc.org/work-safety/tools-resources/injury-facts/chart
- National Center for Education Statistics: https://nces.ed.gov/programs/digest/d17/tables/dt17_303.40.asp
- Size of Hedge Fund & Private Equity workforce:Company website, SEC filing, SEC.gov, Wikipedia
