What Private Equity Investors Do
People who choose a career in private equity (PE), do many of the same things those in investment banking do. However, rather than overseeing deals between companies, PE typically involves raising capital from high net worth individuals or institutional lenders.
A PE firm may then purchase a company outright or purchase a portion of it and sit on the management board. During the lifespan of the investment, the firm earns money from the fees the investors pay and carried interest. It’s up to the private equity investor to determine which deals are worth getting in on and to attract people to invest in the deal. This involves research, statistical modeling, and analytics in the lower positions, while the upper echelon tends to focus more on client interaction.
Who would enjoy a career in Private Equity?
Naturally, the career is good for business-minded people with strong analytical skills. Those who don’t enjoy the segmentation of investment banking may appreciate the smaller teams employed by most PE firms, as it regularly offers more opportunities to work with senior investors and execs as well. It’s also good for those who have strong interpersonal skills and are detail-oriented. Particularly in the early stages of the career, being comfortable with desk work, research, and computers is a must, though those who advance should also enjoy networking and negotiation.
Who mightn't like the career?
It’s often said that the decision to move into private equity should be part of a long-term career plan, as major financial benefits don’t generally start appearing until about a decade into the career. For this reason, it’s not a good choice for someone hoping to earn large paychecks early in his career.
While the number of hours worked tend to be considerably less than those required of investment bankers, aside from when a deal is being closed, those in PE still work considerably more hours than others outside of finance do. Workweeks of 50-60 hours (or more) can be standard.
It’s relatively uncommon for someone to be able to get into PE without having worked in investment banking or management consulting for at least two years. However, some firms will consider candidates if they have the right skillset and an advanced degree.
Having some type of background in investment banking is typically an essential component in getting into PE. This could be something as minimal as interning, though two years of prior experience in investment is generally required.
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Moving into Private Equity from another career
As explained earlier, the most common transition to private equity is from investment banking. Those hoping to get into PE from other careers may have better luck trying to find a way to transition into a firm first in a non-investor position, then going for an investor role.
Role: The role of associate in private equity is developing, as most people who come into the field have attained at least this level in investment banking and transition over. For this reason, the position of associate, and lower positions, such as analyst and intern which are commonly found in finance, don’t exist at all in many PE firms. Those that do offer associate positions typically have a junior role, which a person may remain in for 2-3 years, and a senior associate role, which a person may remain in for another 2-3 years.
Associates handle a large degree of analytical work, including things like modeling with growth forecasts and preliminary due diligence reports. They may also oversee portfolio companies and monitor their stats. When a new investment opportunity arises, the associate may be responsible for reviewing initial information and relaying the findings to senior staff, and associates also gathers data and creates presentations for potential investors.
Role: Vice presidents and principals oversee the work of associates, though their roles tend to be more strategic. At this level, an individual is responsible for uncovering good investments on his own and locating investors as well.
Role: It takes most people 2-4 years in a principal role to progress to partner. Those who aren’t offered a director or partnership role at this point may remain a principal indefinitely, though most often they move to other firms with the aim of progression. In addition to being tapped for a role, the partner must also buy into the firm, which provides him with a stake in the company.
Partners and managing directors make the final decisions on investments and investors, create new relationships with both, and maintain relationships with investors. They may also be involved in guiding businesses that the firm has invested in to help ensure maximum growth and profit.
At the upper levels PE professionals may travel extensively to meet with potential clients and investors.
Associate: According to Indeed.com, average wages for associates are USD$106,000 in America, £53,000 in the United Kingdom, CAD $122,000 in Canada, and AU$123,000 in Australia.
VP/ Partner: EFinancialCareers.com lists US salaries at $250,600 and UK salaries at $231,500. No pay data is available for Canada or Australia.
Director/ Partner: US salaries sit at $409,600, while UK salaries average $351,900.
Bonuses and profit sharing combined can double a private equity investor’s salary.
Why Private Equity Investors move on
While most people who start a career in private equity tend to stay in the field, some do move on. Oftentimes, it’s to take a leadership role in a company that the individual’s firm has invested in, after the investment has matured. For further reading, see the discussion on private equity exit opportunities at Wall Street Oasis.