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 are 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 – if you’re not from a relevant background (we will mention what is relevant background), chances are you will never break into private equity.
So, without any ado, let’s get started.
In this article, we will talk about –
- 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
- In the final analysis
Understanding Private Equity Professionals Background
How to get into private equity – Here’s the thing. Have a look at the Private Equity Job Profile and their desired background of 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. and 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)., and 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 the 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 you would like to get into private equity, then it would be too tough for you. In countries like the USA and UK, it would be pretty difficult to get in. 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.
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 want to go into a senior position and have relevant experience, then your age can be more than 30.
- Most people have a few years of experience when they join a private equity firm, subject to one exception. If you are an undergraduate and you’re hired by big private equity firms like Blackstone or KKR, then 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-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.
Let’s say 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 you are way too senior, you can join a private equity firm as an Operating Partner or Consultant.
- If you are someone who has done an MBA and has relevant experience in investment banking, then 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 so that you can break into real estate private equity.
Now, let’s have a 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, then you need to be a top-notch student, and you should pursue your studies from 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 Masters 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 if you don’t adhere to even one of them, you would be left behind. First, you need to do an MBA (if you are not pursuing a Masters in Finance). Any MBA wouldn’t make the cut. You need to pursue 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 above-mentioned institutes 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 you need to clear three levels that are reasonably tough. If you consider pursuing CFA, you would have some additional benefits. You can go for a lot of 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, there are many skills required to get into a private equity career. But there are three skills that you must develop if you want to get in and stay for a long period of time. 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 SheetThe term sheet is usually a non-binding agreement that contains all the essential points related to the investment like capitalization and valuation, stake to be acquired, conversion rights, asset sale., Due Diligence, LBO Modeling, and more. If you don’t have any knowledge in 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. Let’s say you’re not from a top-notch Institute and you don’t even have an outstanding career graph; but if you have a decent background and excellent networking skill, 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 a great networking skill? You need to be upright and confident about your abilities. You need to communicate briefly, 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 in the beginning), but ultimately this skill will 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. Actually, 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, then 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 just 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 head-hunters 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, 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 hours of work 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 depends on the workload, you may work 16+ hours in a few exceptional cases. Usually, if you are senior personnel in a private equity firm, then you would be able to get benefits in 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. Let’s have a 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 the range of $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 at the end of the day, 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 will be 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”, “personal information”. The only talk about your professional experience deals done, 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 of all along. If you want to get ahead in 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. If you’re serious about PE career, the massive action is the key. 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 you know how to network, you will win half of the battle right away. The idea is to start immediately.