How to Get Into Private Equity?
So you would like to break into a private equityPrivate EquityPrivate equity (PE) refers to a financing approach where companies acquire funds from firms or accredited investors instead of stock markets career? And you want to know how to get into private equity without any hassle!
There is both good news and bad news.
First, here’s the good news – if you read this article through and through, you will have sufficient ideas about how to start a career in private equity.
Second, the bad news is – that if you’re not from a relevant background (we will mention what is relevant), you will never break into private equity.
So, without any ado, let’s get started.
In this article, we will talk about –
Table of contents
- How to Get Into Private Equity?
- Understanding Private Equity Professionals Background
- How to get into Private Equity – Important Points to Consider
- Educational Qualifications required for Private Equity
- How to Get Into Private Equity – Skills required.
- Compensation & Work-life balance in Private Equity
- How to get into Private Equity – Strategies to get you started
- How to Get Into Private Equity – Final Analysis
Understanding Private Equity Professionals Background
How to get into private equity – Here’s the thing. First, please look at the Private Equity Job Profile and the desired background of the candidates.
To break into private equity, you need to have a background mentioned below –
- If you are an undergraduate in finance or relevant fields like economics, accounting, etc., you are from a top-notch institute.
- If you are an investment banking analyst, elite boutique investment bankBoutique Investment BankThe top boutique investment banks are - Perella Weinberg Partners (Global M&A Advisory – Boutique), Lazard (Global M&A Advisory), Rothschild (Global M&A Advisory – Boutique), Evercore Partners (Global M&A Advisory – Boutique), Greenhill & Co. (Global M&A Advisory – Boutique, Blackstone (Global M&A Advisory)., or in-between bank;
- If you have already been working in a PE firm and would like to go to a big firm;
- If you are an investment banking analystAn Investment Banking AnalystInvestment Banking Analyst works with investment banking team and expertise in the area of Accounting, Financial Modeling, Project financing, Project Valuation, and Financial statement Analysis. These analyst has deep knowledge in Excel and they are good at VBA to analyze the market data and financial modeling. The analytic work consists of building a financial model for different projects like Infrastructure projects (i.e. Power projects, real estate, etc.). at a small boutique bank;
- And finally, if you are someone who has a background in one of these four sectors – investment bankingInvestment BankingInvestment banking is a specialized banking stream that facilitates the business entities, government and other organizations in generating capital through debts and equity, reorganization, mergers and acquisition, etc., corporate development, corporate restructuring, and strategy consulting.
If you are not from the above background and would like to get into private equity, it would be too tough for you. For example, it would not be easy to get to countries like the USA and UK. But in countries like Canada, India, Brazil, Russia, or Portugal, you may try to get in because people from different backgrounds are hired in these countries for small private equity firms.
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How to get into Private Equity – Important Points to Consider
Now, here are a few key points to consider if you want to break into the private equity market –
- Age is just a number. But if you want to get into private equity, your age should be less than 30 years for an entry position. However, if you’re going to go into a senior position and have relevant experience, your age can be more than 30.
- Most people have a few years of experience when joining a private equity firm, subject to one exception. If you are an undergraduate and hired by big private equity firms like Blackstone or KKR, you don’t need any experience to break in.
- If you want to have the edge over your peer group, you should do multiple internships at top top-notch private equity firms Top-notch Private Equity FirmsPrivate equity firms are investment managers who invest in many corporations' private equities using various strategies such as leveraged buyouts, growth capital, and venture capital. The top private equity firms include Apollo Global Management LLC, Blackstone Group LP, Carlyle Group, and KKR & Company LP., to begin with. That’s why networking is very useful if you know more people in the private equity industry, your barriers to entryBarriers To EntryBarriers to entry are the economic hurdles that a new entrant must face in order to enter a market. For example, new entrants must pay fixed costs regardless of production or sales that would not have been incurred if the participant had not been a new entrant..
- Finally, if you choose a fund to work for where the recruitment is not very structured, you can start your career in private equity.
You don’t have any relevant background mentioned above, but you still would like to break into private equity (you have great passion and enthusiasm for private equity). What would you do? You have the following options –
- If you have prior banking experience and are way too senior, you can join a private equity firm as an Operating Partner or Consultant.
- If you have done an MBA and have relevant experience in investment banking, consider the exit strategy and join a PE firm as a post-MBA associate.
- You can also consider real estate roles like commercial real estate brokerage to break into real estate private equity.
Now, let’s look at the educational background you must have to break into private equity.
Educational Qualifications required for Private Equity
How to get into private equity – If you want to join a private equity firm, you need to be a top-notch student and pursue your studies at a top-notch university.
Here are the basics you need to know about educational qualifications required for getting into private equity –
- Masters in Finance – The first and most important degree you should go for is a master’s in finance. EFinancialCareers.com has gone through 1.6 million resumes, and they found that almost 27% of private equity professionals hold a master’s degree. So, if you’re pursuing your bachelor’s degree in finance, consider doing a master’s degree in the same discipline.
- MBA from Top Notch Institute – Know that private equity firms are very selective about who they choose to pick. There are various requirements, and you will be left behind if you don’t adhere to them. First, you need to do an MBA (if you are not pursuing a master’s in finance). Any MBA wouldn’t cut. It would help if you pursued an MBA from a top-notch institute. In the USA & Europe, there are only a handful of universities from which big private equity firms pick their people – Harvard, Wharton, INSEAD, Stanford, Oxford, Cambridge, HEC & ESSEC. So, consider doing an MBA from the institutes mentioned above if you still have the scope. EFinancialCareers.com has gone through 1.6 million resumes, and they found that almost 23% of private equity professionals hold an MBA. Otherwise, to be selected by a top-notch private equity firm, you need to have outstanding skills and experience in private equity.
- Chartered Financial Analyst or CFA – Another qualification you can aim for is CFA. Now, CFA is not for the faint-hearted. You need to have four years of full-time relevant experience and clear three reasonably tough levels. If you consider pursuing CFA, you would have some additional benefits. You can go for many investment career options other than private equity – investment banking hedge fundsHedge FundsA hedge fund is an aggressively invested portfolio made through pooling of various investors and institutional investor’s fund. It supports various assets providing high returns in exchange for higher risk through multiple risk management and hedging techniques., equity research, etc. According to eFinancialCareers.com, they have found that 18% of private equity professionals have a CFA degree.
- Other Certifications like CAIA and ACA – You can also go for a few other additional qualifications like CAIA (Chartered Alternative Investment Analyst)CAIA (Chartered Alternative Investment Analyst)There are two levels to the CFA® CAIA exam. Professional Standards and Ethics, as well as an introduction to alternative investments, are covered in Level I, while alternative investments and other integrated topics are covered in Level II. and ACA (Associate Chartered Accountant)ACA (Associate Chartered Accountant)The Institute of Chartered Accountants in England and Wales (ICAEW) offers an ACA (Associate Chartered Accountant) course. There are three levels to the ACA examination, each comprising 15 modules and exams.. However, eFinancialCareers.com has mentioned that only 2% of all private equity professionals (among their 1.6 million resumes) hold CAIA or ACA degrees.
How to Get Into Private Equity – Skills required.
Usually, many skills are required to get into a private equity career. But there are three skills you must develop if you want to get in and stay for a long time. So let’s have a look at these three skills in detail.
Let’s have a look at these three skills in detail.
- Technical Skills – This is a skill you must develop if you want to get into private equity – Financial analysis, Valuations, Financial Modeling, Deal Structuring, Term SheetTerm SheetA term sheet is an agreement facilitating a fundraising process whereby two parties mutually agree to abide by the mentioned clauses concerning the investment., Due DiligenceDue DiligenceDue diligence is a thorough examination of information and strict adherence to the applicable rules and regulations. It ensures asset protection as well as the avoidance of malpractices and conflicts., LBO Modeling, and more. If you don’t know these areas, consider doing an online course or training and make sure that the training helps you learn the skill step-by-step. If you can do a video course like the Investment Banking Training Bundle or Private Equity Training, that would be the best option as you will be able to go through the training again and again to master the skill.
- The networking skills – This skill is the holy grail of a private equity career. You’re not from a top-notch Institute, and you don’t even have a great career graph. Still, suppose you have a decent background and excellent networking skills. In that case, you will work shoulder to shoulder with other private equity professionals who have excellent backgrounds or from Oxford, Wharton, Harvard, or Stanford. So, how would you develop great networking skills? It would be best if you were upright and confident about your abilities. You need to communicate briefly and professionally and tell what you can offer. The best way to become a networking ninja is to create a structure of your story and use it everywhere whenever you try to send an email, personalize a telephonic communication or connect face to face with senior personnel of a big PE firm. The idea is to have no hesitation whatsoever. Yes, you will receive rejections most of the time (at least initially), but this skill will ultimately save you a lot of hard work and time.
- Cold calling: Many people don’t consider cold calling as a skill, but it is a skill, and very few do master it. This skill is an extension of the previous skill. As a job seeker in private equity, cold calling is your best bet. You can still email different private equity firms. If you choose to send emails to big private equity firms, they will share your email with their HRs, and in most cases, you will receive a generic rejection email. And in other firms, the chances of getting a response from HR or any senior PE professional are 1%. However, if you contact the person directly, the chances of success will drastically increase. Start with smaller funds where the recruitment process is not structured. The purpose of cold calling is to get an interview. If you don’t clear the interview, offer to work for free for a few months and learn. This will not only add immense value to your resume; it will also push you one step ahead toward a glorious private equity career.
- Make Connections with Headhunters – Do not expect Private Equity openings on a typical job portal. Private Equity Firms are small in size, and they depend largely on headhunters to manage the operations, including screening resumes, conducting initial tests and interviews, etc.
Compensation & Work-life balance in Private Equity
The chief purpose of getting into private equity is to earn a lot more and work comparatively less. But the truth of the matter is that private equity firms require you to work longer hours (sometimes longer than investment banking) if the need arises. So earning great compensation by putting in lesser work hours is a myth.
Private Equity AnalystPrivate Equity AnalystA private equity analyst is an analyst who looks for undervalued companies for a private equity investor to buy, take them private and earn profits. The companies are primarily unlisted, and the risk is higher. would typically work 12-14 hours a day, and depending on the workload, you may work 16+ hours in a few exceptional cases. Usually, if you are senior personnel in a private equity firm, you would be able to get benefits during working hours. But know that there would be a healthy work-life balance, and occasionally, you may need to cram all night.
The compensation is the main attraction of PE jobs. People tend to get into PE mainly because of the pay. So let’s look at the compensation of private equity professionals at various levels.
Private equity professionals usually get paid in three forms of compensation – basic salary, bonuses, and carried interest. Carried interest will seem to matter once you reach a higher rung. According to Preqin, the average carried interestAverage Carried InterestCarried interest, often known as "carry," is the portion of profit earned by a private equity firm or fund manager upon the fund's exit from an investment. This is the most important part of the Fund manager's total remuneration. associates and senior associates in the US receive is within $60,900 to $200,000 per annum. If we add these carried interests with the cash compensation of $173,000 to $259,300 per annum, then it’s a huge sum of money.
However, carried interests make more sense in the case of MDs and CEOs. MDs and CEOs of big equity firms in the US receive $3.3 million and $3.4 million per annum only in carried interest. In Europe, MDs and CEOs receive around $3 million and $1.5 million in carried interest.
Now, let’s have a look at the compensation at each level in PE firms (In the US, Europe & Asia) –
Average Private Equity Pay in the United States
Average Private Equity Pay in Europe
Average Private Equity Pay in the Asia Pacific
How to get into Private Equity – Strategies to get you started
There are a few things you need to get started right away –
- Start by etching out a personal story: Structure a story containing your background, why you are interested in private equity, how you developed your interest in PE, where you did your internship (if any), and how you want to shape your career in private equity. This would be your selling pitch whenever you are asked to introduce yourself or whenever you will talk to someone over the phone for an interview.
- Craft a great PE resume: Ideally, the resume should be one page long. You can go for 1.5 pages max. And remove “objective,” “hobbies,” and “personal information.” The only talk about your professional experience deals with educational qualifications, extra-curricular activities, and contact details. And make sure that you use all the PE terms as action verbs.
- Network, cold call, and send emails: Do three. If you want to get ahead in your PE career, these three will do the trick. First, find out who you need to connect to. Then call up or send an email or sit face-to-face if possible. If you’re a junior professional, you can consider doing internships for top-notch banks if they don’t offer you interviews immediately.
- Get started right away: Stop reading and start acting. Massive action is the key if you’re serious about your PE career. Start with anything. Find out about someone who you can contact today or craft your PE resume.
How to Get Into Private Equity – Final Analysis
A solid background is a cornerstone of breaking into the private equity market. However, if you have a burning desire and know-how to network, you will win half of the battle right away. The idea is to start immediately.
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