What is a Career in Private Equity?

A career in private equity is one of the most desired professional pathways for a number of reasons – it can be extremely lucrative, it’s intellectually rewarding, and in general provides a better work/life balance than other highly competitive areas in finance such as investment banking. Private equity firms are investment companies that allocate capital to private companies (i.e. neither publicly listed nor traded on an exchange). They source financing from institutions such as pension funds and sovereign wealth funds, and invest their money with the objective of achieving a return on the investment after an exit such as an IPO (initial public offering) or selling the business to another firm. In turn, a fee representing a percentage of the assets under management is charged. There are various roles depending on seniority and specialization, but those aspiring to work in private equity should be prepared to spend a significant amount of time gathering data and conducting due diligence on companies. Deal execution is another aspect of the job, as is portfolio and risk management.

Key Learning Points

  • The private equity space is one of the most competitive, but also offers some of the most lucrative careers in the world of finance.
  • Private equity is often perceived as offering an exit opportunity for those who have already gained experience working in investment banking or investment management.
  • Strong academics (a minimum of a bachelor’s degree from a top university, but often an MBA as well) are a requirement, while financial certifications are viewed as beneficial.
  • While on the surface work-life balance may look better compared to investment banking, the reality depends on elements like seniority in the firm and company size.

Why work in Private Equity

This question may be asked during an interview, and while the rather standard answers may be structured around a passion for investing and building value for companies, the simple truth is that compensation in the private equity space is typically unmatched. In addition, the work is more interesting compared to the like of investment baking, and gives exposure to various aspects of the deal process. While candidates should not expect a normal 9 to 5 hours, the work-life balance is usually also better than investment banking (subject to the individual company).

Education Requirements

In terms of education and academic achievements, private equity firms are typically very demanding. While a Bachelor’s degree in a numerical discipline such as finance, accounting, mathematics or even physics can tick the first box, most professionals in the industry have achieved an advanced degree such as Master’s in Finance or Master of Business Administration, before even entering the industry. In fact, most companies are typically seeking to onboard people directly from MBA programs, that specialize in private equity, at top business schools as it is assumed that most of the attendees already have at a couple of years of experience and have further developed their analytical and leadership skills.

Certification/Courses

Financial certifications and courses are another way to demonstrate dedication and earn an interview. Our online private equity course will help you to master the core technical skills, from in-depth financial statement analysis to structuring complex add-on acquisitions in a leveraged buyout. Perfect for anyone new to the industry or looking to break in.

The Chartered Financial Analyst (CFA) qualification is one of the most respected in the industry and would definitely add value to applicants’ resume. Another relevant qualification is the Chartered Alternative Investment Analyst (CAIA), which puts stronger focus on the world of alternatives. An executive education course from top university might also be helpful, but candidates should note that these are not MOOCs and would typically be rather expensive.

Last, but not least, as ESG (Environmental, Social and Governance) factors are becoming increasingly important in the world of private companies, qualifications like our online ESG Certificate, covering ESG investing, analysis,and portfolio construction, are highly valued by employers.

Team Structure/Hierarchy

Private Equity Analyst

This is an entry-level position, in which employees do not make deals and are often supervised throughout the whole process. Analysts are typically assigned specific tasks, such as data analysis, where strong financial modelling skills are key.

Private Equity Associate

Unlike analysts, associates are trusted to work independently and usually spend their time seeing a deal through from start to finish. To recognize their seniority and progress, associates are also given to opportunity to generate ideas and participate in the decision-making process.

Private Equity VP

Vice presidents are senior employees that rarely deal with data and are responsible for managing client relationships and presenting to new clients. While most VPs have strong technical background, negotiating and management skills are more relevant for their role.

Private Equity Senior VP, or Director

Senior vice presidents and Directors are usually responsible for fundraising and facilitating deals. While execution is delegated to employees down the hierarchy, they are in charge of final negotiations, decision-making and overall strategic business management.

Key Skills Required for Private Equity

Although different levels at the firm require different skillset, some of the key skills required for a successful career in private equity include:

  • Strong financial modelling and writing skills
  • Ability to assess companies’ commercial potential
  • Knowledge around business and operations
  • Presentation and relationship management skills
  • Critical thinking, both from micro- and macro-economic perspective

Private Equity Salary & Bonus

As you might expect, salaries vary across different organisations (depending on the firm’s size, fund type and seniority), where total compensation is typically composed of base salary and a performance-related bonus. In addition to that, another type of compensation that some employees may receive is known as carried interest. It is typically paid once the company invested in is sold or listed on the market, which is usually a few years after the initial deal was made. The below table shows rough estimates that are in-line with the seniority position.

Position Base Salary in USD Bonus in USD
Analyst $70K – $100K $30K – $50K
Associate $85K – $110K $85K – $110K
Vice President $100K – $150K $100K – $150K
Senior Vice President / Director $150K – $200K $200K – $500K+

Private Equity Hours

It might be a bit tricky to give an estimate of the expected work hours in private equity for the reason that company and team size, and deal flow really matter. However, as a rough guidance, employees at smaller firms should expect anywhere between 60 to 70 hours per week, where that number may go north of 80 for mega funds. It should be noted that hours do not necessarily depend on the employee’s seniority in the firm.

Private Equity Pros and Cons

Some of the notable advantages of working in private equity are the high salaries at all levels of seniority, the interesting work with exposure to different companies, potentially better hours compared to investment banking and the fact that career progression often directly linked to individual performance. In addition, the industry is less likely to be disrupted by technology due to being more relationship and negotiations driven.

On the other hand, along with being extremely difficult to get into and still requiring longer hours than asset management for example, career path in private equity may not be as clear as in other industries. It also viewed as the preferable exit route for investment bankers and the turnover tends to be relatively low, but for those looking to leave there could still be other interesting exit opportunities like investment management, hedge funds or starting an own venture.

Is Private Equity right for you?

As discussed already, the private equity industry is extremely competitive and demands robust skills set, long working hours and passion for financial investing deals. Excellent grades from a reputed university, along with some previous experience in an investment-related area such as investment banking or management, are also usually required. Overall, if you tick those boxes and want to expose yourself to the world of deals and potentially increase your pay significantly, private equity might be the right for you.

Conclusion

A career in private equity is often compared to that in investment banking, but nevertheless it might be more appealing to those that want to get their compensation more aligned with individual performance. Although getting a position is quite challenging, the work environment in private equity funds tends to be less political compared to the one in banks, and role may also suit goal-driven individuals with desire to get broader set of responsibilities.

Additional Resources

Private Equity Associate: The Recruitment Timeline

Private Equity Interview Questions

Investment Banking Vs. Private Equity

Hedge Fund vs. Private Equity