What is Private Equity?
Private equity refers to ownership capital, comprised of funds or investors, which is invested in a start-up, growing, or established companies that are not listed on a public exchange. A Private Equity Analyst is an employee of a Private Equity business who assists more senior members of staff in the investment making decision process.
Key Learning Points
- Private Equity is a highly competitive sector with limited if any direct points of entry for pre-MBA undergraduate universities;
- Private Equity Analysts are required to have strong technical and interpersonal skills to excel in the industry;
- The majority of Private Equity Analyst work is non-market facing in nature and usually is in support of a senior deal-making team; and
- Private Equity Analysts need to be well informed on macro, micro, and industry-specific events.
What is a Private Equity Analyst?
A Private Equity Analyst is an entry-level employee within a Private Equity business, whose principal functions include but are not limited to;
- Research – Researching information that may inform buy or sell-side deal implications. Including national, sectoral, and industry-specific trends or legislations as well as competitive landscapes.
- Modelling – Analysts are required to possess a strong financial and business acumen and are often expected to be able to build financial models and carry out financial analysis of both target companies and sectors.
- Documentation Drafting – Analysts will be required to draft pre-transaction presentations on target acquisition companies, in support of senior team members. This type of documentation will include corporate presentations, investment committee memorandums, and periodic reports on portfolio companies
- Deal Support – Analysts will often be required to be part of a due diligence process in pre or post-acquisition processes. Principally serving as administrative or research assistance to the principal deal team.
- Post-Investment Oversight – Analysts may be asked to oversee/monitor the accounts or reporting of post-acquisition portfolio companies.
The quality of an analyst’s work is constantly being evaluated and must be of exceptional quality for them to progress within the firm.
How Do You Become a Private Equity Analyst?
It is incredibly difficult and highly competitive to enter most private equity firms. Private Equity Analysts do not typically come from a private equity background. Often Private Equity Analysts would have spent some time in either summer graduate training programs or full-time analyst training programs in either consulting or investment banking firms.
The commercial acumen, networks and other skills garnered during these training programs serve analysts well in their roles within private equity.
Very few firms recruit directly out of undergraduate universities, often through summer analyst programs.
What Skills Does a Private Equity Analyst Require?
The key skills that will help a Private Equity Analyst would be:
Valuation Skills – Due to the varied nature of applicable methodologies depending on the sector and the company, it is imperative that analysts have breadth and depth in their understanding of valuation methodologies. These will inform the quality of their business and investment judgments and decision-making.
Industry and Sector-Specific Knowledge – A robust understanding of multiple sectors and the impact they have on each other is of profound value to prospective analysts. This allows analysts to keep their work relevant and applicable and allows them to adapt to various operating environments.
Networking and People Skills – Few industries are as dependent on one’s network and relationships as private equity. Analysts interact with people at various organizations and the ability to acquire intelligence, and develop productive and positive relationships internally and externally is vital.
Stamina/Endurance – Private Equity like all financial services sectors operates in a high intensity and demanding work environment and the mental, emotional and physical fortitude to keep pace with this environment should be a factor all aspiring analysts to take into consideration.
As an employee of a Private Equity business, a Private Equity Analyst will be involved but not limited to the following activities, research, modeling, documentation drafting, deal support, and post-investment oversight. Whilst it is a difficult employment position to obtain, with a significant number of candidates coming from an investment banking/consulting background the skills a Private Equity Analyst requires are; valuation skills, industry and sector knowledge, networking and people skills, and the ability to operate in a high-intensity working environment.
Below is a multiple-choice question to test your knowledge and understanding of this topic: