Jobs In Private Equity

“Private equity” refers to a class of funds and investors who invest for acquisition or a stake in private companies that are not yet listed on any stock exchange. This means that in private equity, money is invested in firms which haven’t gone public and which need capital and restructuring.

Private equity investors are always looking for opportunities for buyouts, in entirety or in part, in order to buy businesses at a lower valuation and make them more valuable by turning the business profitable. Once the business is bought, the private equity firms do everything they can with power and resource to restructure it. Strategies of the new management are always targeted at bringing necessary amendments to make the business more profitable.

PE firms also engage in providing collateral to targeted companies in order to borrow additional funds through “leverage buyouts”. The leading private firms along with companies that involve mid-market transactions, control one trillion dollars of capital. KKR, Blackstone and TPG are some of the leading form in this space.

Most Private Equity firms (PEs) exists with exclusive partnership plans where limited partners hold 99% of shares because they provide funds and general partners who provide business expertise hold 1% of shares. Investors in private equity are generally compensated when: (1) the firm that wasn’t listed in stock exchange goes public or in other words launches an Initial Public Offering (IPO) (2) a private firm is sold or merges with another firm, or (3) firm is recapitalized by another company.

Private equity offers some of the most lucrative careers in finance. In this article, we explore the reasons why private equity makes a great career in finance.

Private Equity Careers

Why Choose A Career In Private Equity?

People are drawn towards private equity because the work is not only interesting but also full of opportunities. They get to interact with experts of all kinds from bankers, consultants, legal representatives to CEOs of top management teams. It is common to be involved in top-level business discussions, even at a junior level. That said, PE does require long hours of research and statistical studies.

PE being a financial path offers excellent remuneration and salaries. Salary and bonus aside, PE professionals receive a wholesome incentive known as ‘carried interest’ apart from their basic pay. Carried interest is a direct share in their company’s profits and makes a substantial part of the earnings. PE professionals in the US are granted carried interest from earnings even before they reach director level and after they reach that position in European and Asia-Pacific firms.

Where do Private Equity firms Hire Talent?

People think if they have a reputable degree in any field then it would be easy for them to get into PE firms but it is not so. Private Equity firms hire mainly analysts from:

• bulge-bracket investment banks since they are capable of designing best leverage breakout models
• middle-market banks and boutique banks because firms think such candidates would possess core knowledge of company restructuring.
• PE professionals from other firms since they have been exposed to the basics and have gained a certain level of expertise in company analysis and investment policies
• undergrads for junior roles in emerging markets because their raw knowledge sometimes turns out to be a capital fetcher.

It is difficult to get into PE firms if you possess very little or no knowledge about how these firms work. PhD degree holders and corporate lawyers do have an academic background but they don’t fit in the prerequisites of PE. It’s highly unlikely for a firm to hire associates from such fields.

The top firms hire the cream of the crop from finance-focused business schools such as Harvard, Stanford, Wharton, and Booth in the US, LBS, Oxford, and Cambridge in the UK, and INSEAD, HEC, and ESSEC in France. US-based firms hire more MBA associates than European firms. Big PE firms such as Blackstone, Carlyle, and KKR hire investment bankers who have 2-3 years of experience. PE firms prefer investment bankers because banking and PE require similar skills.

PE firms prefer bankers with expertise in financial modeling, transaction management skills, strategic thinking, industrious nature and sector knowledge. Second-year bank analysts are preferred over first year one based on their experience and efficiency. Elite PE firms also prefer candidates from unconventional backgrounds such as equity research and corporate strategy. If you have worked in big investment banks such as Goldman Sachs and Morgan Stanley or if you are junior strategy consultant at McKinsey, Bain or BCG, then you have high chances of getting a job in PE.

Science professionals, corporate lawyers, non finance MBAs & engineering PhD’s are highly unlikely to be hired by firms based in US/UK. It’s possible but still it’s not probable. However, firms outside US/UK, like those in India and Europe might hire professionals with non finance backgrounds if they have experience in work in a closely related field on financial transactions such as valuation/advisory, consulting, direct lending, corporate development role.

Skills Needed For Private Equity Jobs

Degrees are only part of the battle and help primarily in the initial screening process. A strong professional background in investment banking, strategy consulting, corporate development and restructuring is what recruiters seek. Being conversant with knowledge of restructuring a company and building strong LBO models, would be an added plus.

Skills Required For An Associate Job In PE

• Knowledge of specific industries that can offer better investment plans
• Ability to strategize schemes that can generate profit
• Strong ability to develop and analyze spreadsheets which help in maintaining records as well as comparing the growth of different firms
• Financial modeling, company analysis skills, and knowledge of illiquid funding
• An insight into how other businesses are performing
• Knowledge of how management interventions could help business growth.
• Ability to research markets, assess the extent of competition and market size of willing customers

Proficiency in European languages is a plus point for private equity interviews. It is really useful to know languages such as German, French, Italian, Spanish, Dutch, or Nordic and Eastern European languages. It goes without saying that ability to handle pressure is an important requirement.

Your focus should be on standing out as an all-rounder. You should state every field you have excelled in. For example, if you have done well in athletics, you should talk about it. Also, don’t forget to show your capacity for leadership and entrepreneurship. If you have been a club president or organized a charity, make a mention of it in your CV.

What Time Of The Year Do Private Equity Companies Recruit?

There an on-cycle and an off-cycle recruitment process in PE firms. The on-cycle process for traditional analysts from banks at big PE and boutique firms run from October-January/March in New York every year. If you are selected within these months, you can commence your job from August of the next year.

The off-cycle process is meant for roles outside New York. It is for anyone who is not working at an investment bank and roles at smaller firms. Off-cycle recruitment processes takes more time than on-cycle but you can start working immediately. Firms based in London, start the process in January with options to start immediately.

Tests in the on-cycle process are time-bound and quick but tests in off-cycle require more thought and preparation for writing real investment thesis. Outside the US and the UK, too, a more or less similar pattern of case studies and modeling tests followed by an interview is the norm. Headhunters are always looking for candidates excelling in all the rounds in the on-cycle process and hold considerable sway in the on-cycle process.

Undergraduate and graduate students who aspire to participate in private equity interviews are often advised to start networking and research well before they start their job hunt.

How to Prepare For Private Equity Tests & Interviews?

Private equity firms are always looking for candidates who can design a perfect LBO model. These firms hold studies and LBO modeling tests to evaluate your ability to work under pressure. You need to have expertise in company analysis and potential investment opportunities to crack these tests.

Tests are bifurcated into three kinds:

• Quick tests: which take about 30 minutes and wherein you have to create a sample LBO model
• Intermediate Tests: these are 1-3 hour long, and candidates have to make a real LBO model
• Take-home tests: these range from a few days to a few weeks wherein candidates have to write a real investment thesis

Cracking PE Interviews

PE interviews are a hard nut to crack. You don’t have to be a math genius but you need to be aware of basic arithmetic and you need to have an ability to quickly analyze things.

Interview questions are usually of four types:

• Fit related questions: Why you chose PE, questions on the firm you are looking to join, your long-term goals, etc
• Questions related to market/industry to analyse your knowledge of the industry and their potential investment plan.
• Technical Analysis questions involving crunching of data
• Questions about your previous client experiences

Candidates must remember to give equal importance to all four types of questions because firms and not focus only on modeling. Remember PE is also a client facing role so you need to be more than a Olympiad whiz.

At interviews, it would be beneficial if you could say you are interviewing at other firms, too. Headhunters become more interested in you the moment you say you’re also talking to others. It builds an impact of your high demand amongst firms.

You should do a prior analysis of the firm you are going to be interviewed by so that you have the right knowledge of their investment policy and what deals they opted for in the past. You should also be aware of where they went wrong and maybe have solutions – use this sparingly though as you don’t want to come across as critical of the company. Done right, this will impress the interviewers aplenty.

A typical candidate who masters interviews is usually the one who has worked for a big bank in a premier bank, is academically sound from an elite university and has a great GPA score. When it comes to the CV interview round, prepare for questions such as numbers on transactions handled, or large deals that you have managed.

In this round, you will typically be asked to provide details of relevant deals managed by you, why you are interested in this specific PE, which companies you’ve worked with before that offer good investment opportunities etc. You need to be sound in your understanding of the LBO model and concepts such as EBITDA (earnings before interest, taxes, depreciation, and amortization) and FCF (free cash flow) etc.

Knowledge of research methods, importance of management for PE, interesting deals in the news recently, where you see yourself in the next few years and your motivation and goals, are some of the other things that may come up for discussions. Some firms may also do a informal meet and greet with the team over a lunch to see if other people will enjoy working with you. Don’t let down your gaurd down though – you will be under scrutiny.

The perfect CV

Recruiters are never looking for multi-page epic CV. A single page essay is the norm – all the recruiters are looking for are key positions & achievements in a reverse chronological order. Use bullet points instead of long paras.

Have a couple of bullet points about your qualifications, aspects of your background relevant to PEs; deals handled by you at an investment bank job or in a Big 4 corporate finance role, and a couple of points about your personal interests.

And skip the photo. It’s not needed, nor is it appreciated.

Reviewing Your Application

If you make it Congrats! In case you don’t, don’t lose heart. Analyze where you could have improved – did you present your story well? Did your CV capture your core story succinctly? Could you have performed better on the technical interview? You must work over your weak points and strengthen them. There will always be more chances down the line – just be sure you are ready when they come.