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What Does a Career in Private Equity Look Like?

A role in private equity is a very competitive yet rewarding career path. Getting started in a profession in private equity (PE) requires strong analytical and networking skills to jumpstart a career at a PE firm. 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. 
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Private Equity: What You Need to Know

Private equity firms are usually smaller than investment banks and can be as small as 5–10 employees within a firm. While historically smaller, there are also several large private equity firms emerging with large market caps. Regardless of size, associates employed by these firms use private equity funds for various portfolio companies across all industries and levels within a company life cycle. Private equity funds are brought in from fundraising outside capital, usually from investment companies or wealthy individuals. Funds buy outstanding portions of private companies or struggling public companies by buying out shares and delisting. Once portfolio companies are purchased, PE firms work heavily with management to rework company operations to cut down on unnecessary costs and inefficient work-related matters. Unlike hedge funds, private equity firms hold onto their investments for an extended period, up to 10+ years, before selling for a profit.

What is LP and GP in private equity?

Limited partners (LPs) are wealthy individuals or investment companies that invest their money upfront to private equity firms to begin their investment journey. Limited partners are not involved in company operations after investment and are only looking to turn a profit on their investment. General partners are PE firms and are responsible for the restructuring of company day-to-day operations and budgets to improve efficiency and make new technological advancements. From the beginning to the closing of a deal, general partners get paid by charging a fee to the company in question for their services.

Different types of private equity strategies

Private equity firms can use a few different strategies when choosing which companies to invest their funds in. PE firm's three main strategies are venture capital, growth equity, and buyouts.

  • Venture capital: This form of investment takes place at the startup phase in the company life cycle. Startups need outside capital to fuel company progression and reach growth goals. VC investors usually choose companies that are not ready to go public yet.
  • Growth equity: The companies that growth equity firms choose to invest in have proven successful and are well managed but need increased liquid assets to grow. Growth equity investors are either looking for a minority or majority share for a long-term investment.
  • Buyout: These companies are failing, either privately or publicly, and need to be bought out to improve in-house operations. Such operations may include budget cuts, management changes, and outsourcing.

Private Equity Jobs

Private equity firms usually look for entry-level associates with at least two years of experience within the banking industry. Investment bankers usually follow the PE firm career path as their next job and typically have a bachelor's degree in finance, accounting, economics, and other related fields. Landing a career in private equity is very difficult because there are few jobs on the market in this profession and so it can be very competitive. Coming into private equity with no experience is impossible, so finding an internship or having previous experience in a related field is highly recommended. Private equity professionals can advance fast within a firm and typically start as junior associates or analysts.

  • Junior associate/analyst: Employees in entry-level positions do not get to make deals 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 associate: The main difference between a junior analyst and a senior analyst is independence. Senior associates spend their time seeing a deal through from start to finish. In addition, generating ideas is a new job responsibility as you progress from junior to senior associate, allowing you to take on more responsibility in decisions.
  • Vice President: Vice presidents have more of a communications role than junior positions. VP's deal less with data sorting and more with client relations and presentations. Technical skills matter less than negotiation abilities, and they also are responsible for in-house management and mentorship of associates.
  • Director: One step away from Partner, Directors are in charge of fundraising as well as facilitating deals. Most of the execution is delegated to the previously mentioned team members while the director handles the final negotiations and major company decisions.
  • Partner: Partners focus mainly on company representation, funding, and client relationships. This job has no technical component, but negotiations skills are required to present and convince Limited Partners to provide funding. Partners are also required to invest a portion of their wealth into the company to invest in their team. 

Is Private Equity Right for Me?

As previously emphasized, starting a career in private equity is competitive and typically requires relevant experience and a robust set of skills. Private equity professionals work long hours and are highly competitive and must think critically, and have a passion for financial investing deals, not just following the markets. Other requirements to start a career in private equity are: 

  • Excellent grades and a notable transcript in school. (an MBA or advanced degree is not required but can be beneficial.)
  • Previous experience is often required and encouraged. In addition, excellent networking skills would be beneficial when landing an interview with a PE firm due to its competitiveness. 
  • Strong problem solving and analytical skills in addition to required knowledge on:
    • bolt-on acquisition analysis and market research conductions
    • confidential information memorandum (CIM) reviews and financial modeling formulation
    • ability to create leveraged buyout (LBO) for client deals

Obtaining an internship within a private equity firm or starting off in a related career path like investment banking or management consulting would be beneficial in exposing yourself to the environment. PE firms are typically looking for individuals with assertive, independent, and analytical qualities.

Other Possible Career Tracks in Finance

How Can the CFA Program Help Me?

Equity investments is one of several important subjects that are covered through the CFA® Program. Because CFA charterholders have mastered a curriculum that provides comprehensive investment expertise, many employers list the CFA designation as a preferred credential for consultant roles. The CFA charter prepares professionals to adapt to the continually changing demands of the investment industry. 

Explore whether CFA Program is the right choice for your next career steps

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