What does a career in private equity look like? (2024)

Private equity firms are typically smaller than investment banks and may have only 5 to 10 employees in a company. Although historically smaller, there are also several large private equity firms emerging with large market capitalizations. Regardless of size, employees employed by these companies leverage private equity funds for various portfolio companies across all sectors and levels of a company's life cycle. Private equity funds come from fundraising outside of capital, usually from investment firms or wealthy individuals. Funds purchase outstanding shares of private companies or troubled public companies by buying up shares and taking them private. When purchasing portfolio companies, PE firms work closely with management to redesign the company's operations to eliminate unnecessary costs and labor inefficiencies. Unlike hedge funds, private equity firms hold their investments for a longer period of time, up to ten years, before selling at a profit.

What are LP and GP in private equity?

Limited partners (LPs) are wealthy individuals or investment firms who invest their money upfront in private equity firms to begin their investment journey. Limited partners are not involved in the company's operations after the investment and only try to make money from their investment. General partners are PE firms and are responsible for restructuring the firm's daily operations and budgets to improve efficiency and achieve new technological advancements. From inception to closing, general partners are paid by charging that firm a fee for their services.

Different types of private equity strategies

Private equity firms can use a number of different strategies when choosing which companies to invest their money in. The three main strategies of the PE firm are venture capital, growth capital and buyouts.

• Venture Capital:This type of investment takes place in the start-up phase of the company's life cycle. Startups need external capital to further the company's progress and achieve growth goals. VC investors typically choose companies that are not yet ready to go public.
• Share growth:The companies that growth equity firms invest in have a proven track record of success and are well managed, but require more liquidity to grow. Growth stock investors are looking for a minority or majority stake for a long-term investment.
• Purchase:These companies are failing, both privately and publicly, and need to be bought out to improve internal operations. Such operations may include budget cuts, management changes and outsourcing.

Private equity firms typically look for entry-level associates with at least two years of experience in the fieldbanking sectors. Investment bankers typically follow a PE firm career path as their next job and typically have bachelor's degrees in finance, accounting, economics and other related fields. It is very difficult to build a career in private equity because there are few jobs in this profession on the market and it can therefore be very competitive. It is impossible to get into private equity without experience, so finding an internship or having previous experience in a related field is highly recommended. Private equity professionals can advance quickly within a firm and typically start as junior associates or analysts.

• Junior assistent/analist:Employees in entry-level positions are not given the opportunity to make agreements or work independently through all process steps; instead, they are assigned more specific tasks, such as reviewing data. Some required skills include financial modeling and the ability to work with a large amount of data.
• Senior employee:The main difference between a junior analyst and a senior analyst is independence. Senior employees spend their time going through a deal from start to finish. Additionally, idea generation is a new job responsibility as you progress from junior to senior employee, allowing you to take more responsibility in decision making.
• Deputy director:Vice presidents have more of a communications role than junior positions. VPs are less concerned with sorting data and more with customer relations and presentations. Technical skills are less important than negotiation skills and they are also responsible for internal management and employee guidance.
• Manager:A stone's throw from Partner, the directors are responsible for fundraising and facilitating deals. Most of the execution is delegated to the aforementioned team members, while the director handles closing negotiations and key business decisions.
• Partner:Partners mainly focus on business representation, financing and customer relations. This job has no technical component, but negotiation skills are required to present and convince Limited Partners to provide financing. Partners must also invest some of their assets into the company to invest in their team.

As previously highlighted, starting a career in private equity is competitive and typically requires relevant experience and a solid skillset. Private equity professionals work long hours, are highly competitive and must think critically and be passionate about financial investment deals, not just follow the markets. Other requirements to start a career in private equity include:

• Excellent grades and a remarkable grade in school. (An MBA or advanced degree is not required, but may be an advantage.)
• Previous experience is often required and encouraged. Additionally, excellent networking skills would be helpful in landing an interview with a PE firm due to its competitiveness.
• Strong problem-solving and analytical skills in addition to the necessary knowledge of:
  • additional acquisition analysis and market research
  • confidential information assessments (CIM) and financial model formulation
  • ability to create a leveraged buyout (LBO) for customer agreements

Pursuing an internship at a private equity firm or starting a related career path, such as investment banking or management consulting, would be helpful in exposing yourself to the environment. PE firms typically look for individuals with assertive, independent and analytical qualities.

Discover othersfinancial careersud over private equity:

• Investment bank
• Portfolio management
• Risk analysis and risk management