How to get into Private Equity

Remember in our other article on Finance vs. Consulting where we talked about different sectors in finance where one could pursue a career, well today we’ll be talking about one of the most appealing careers in the finance sector: private equity. For many, private equity is even more alluring than investment banking. 

You don’t believe it? Please read on

What is private equity?

Private equity is the industry where capital investment is made into companies that are not publicly traded on the stock exchange. To make profits, private equity (PE) firms will conduct extensive research looking for private companies with great exponential potential that they’ll buy or invest in to increase their value. To meet this objective, PE firms will provide the resources necessary to help the target companies grow, develop new products and restructure. A PE firm may choose to keep the acquired firm for a long time if it feels like not selling.

Thus a professional with a PE career will be an individual involved in the entire process of buying/investing, maintaining and liquidating/exiting an investment or acquisition. We’ll talk about the duties of a PE professional in a bit but let’s talk about an example of a good investment by a PE firm. In 2021, along with the British billionaire Issa Brothers, TDR acquired Asda in a deal worth  £6.8 billion. The target for Asda is that in due course it will become the second biggest supermarket in the UK. 

The role of a PE Analyst/Associate

In the UK the most junior role for graduates seeking to enter into the private equity industry is that of an analyst. In the US, this position will be known as the associate role (some UK firms can also use the title of associate). It is not unusual for PE analysts to have previously worked in an investment bank. To them working in a PE firm is the next step in their financial career, the pinnacle of a financial career. Just as the World Cup is the pinnacle for footballers.

As an analyst in private equity, your role and duties will include but are not limited to the following: 

• Analysis of the economics of companies and potential deals, you be charged with providing all the preliminary info necessary for the leadership to make an informed decision about a deal 
• Part of the analysis will include coordinating the research and due diligence needed for a deal to take place
• Research new deals and investment areas
• Assist with preliminary fundraising 
• Screening of Confidential Information Memorandums (CIMs) to determine if certain opportunities fit the firm’s framework. After the screening, the analyst will provide a one or two-page summary for the senior employees. CIMs are documents provided by investment banks that contain information about potential investment opportunities.
• Prepare relevant documentation for partners

How to get into private equity

If you want to be a PE analyst, it is better you first know that you will be expected to work extremely long hours during deal closings, and expected to work at odd hours because a deal might traverse multiple jurisdictions. 

The Private equity industry is one industry where the firms barely recruit their analysts straight out of university. It is very rare to get a role in this market straight from university without having been involved in the industry or related industry. As we have said earlier PE firms hire their entry-level analysts from investment banks. Thus the first and most common route is to start your career by working in an investment bank. A minimum of a solid two-year experience at an investment banking firm will help open the door to a private equity firm.

The second route into PE is through working in a consulting firm. A role in a firm partaking in corporate, strategy and management consulting sectors will give you a window into PE. This is because working at typical firms like MBB gives you exposure to all aspects of business and finance. The skills gained which include analytical, communication and commercial skills provide an excellent foundation for success in a full-time private equity role.

Another route – though is very rare – is by being recruited while at uni. Through this path, you will have to engage in their summer analyst programmes. These programmes are few, so expect intense competition in your pursuit of one.

Education and Skills

To be a PE analyst you should have a bachelor’s degree in finance, accounting, statistics, mathematics, economics or any other related analytical degree. The reason for the preference for these degrees is because PE fund management requires the technical ability to analyze financial performance and estimate the value of a private company (this will usually involve a lot of financial data). Sometimes an MBA may be required also. It has been suggested that the best MBA program to get into the PE industry is the Harvard Business School. 

In addition to the analytical skills that the abovementioned courses will give, candidates should also be comfortable with database tools like Bloomberg and modelling tools like Excel or Visual Basic. Further skills you should be comfortable with our attention to detail, interpersonal, communication, networking, negotiation and durability skills. The hours will be long; you’ll meet power shakers so you need to get along with them and the deals you recommend in the preliminary stage need to be excellent. Thus all of the aforementioned skills are very important to your being successful in the industry.

Salary and Bonuses

On average, an analyst in a top private equity firm may earn around £150,000 per annum. A basic salary would be £75,000 to £100,000 per annum and then the bonuses on top total around £56,000 to £102,000 per annum. This is truly an industry where money rains.

If you become a managing director or partner at a top private equity firm your compensation package can run north of $3 million.

Conclusion

This is a tough market to crack. The stat that roughly $3.9 trillion in assets were held by private equity (PE) firms as of 2019 is a testament to this fact. As the ultra-high net worth individuals seek excellent funds that can protect and increase their wealth, private firms will also seek only the best of talent with a great track record of educational qualifications and experience.

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Charles is a writer, practising lawyer and personal trainer who loves learning and developing himself. He graduated from Middlesex University, London with eight first-class grades in the second and third years of his law degree, and received a postgraduate offer from Cambridge University. He loves strength training, boxing and encouraging people to succeed in their pursuits (legal ones)
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