Private Equity Analyst Guide
Private equity analyst is an equity analyst who looks at companies that are undervalued so that a private equity investor can buy the company, take it private and earn profits.
Private equity can be broadly defined as investment in the private, unlisted companies by assuming higher risks and hoping for substantial returns. Becoming a private equity analyst is a dream for almost any Finance professionals.
Do you think that getting a job as a private equity analyst is easy? The answer is a big NO!.
Private equityPrivate EquityPrivate equity (PE) refers to a financing approach where companies acquire funds from firms or accredited investors instead of stock markets can be really interesting if you enjoy interacting with people, conducting research, doing due diligence, and managing finance portfolios for people. What I aim to do through this article is to assist you in exploring private equity as a profession and to give you a clear picture of what you would be as a private equity analyst.
What is Private Equity?
To help you understand this, answer my question- what is that the start-up companies and well-established companies have in common? It’s simple; they both require investment/capital to grow. This growth could mean building more manufacturing plants, recruiting more people, or rejuvenating the existing products. Such investments could also help in buying another company or save a company from closing down.
So, where does this investment come from? It could be borrowing from some bank or selling shares and raising money from the stock exchange.
But sometimes companies look for something more than just the monies flowing in the company. They want investment from someone who could guide them in building their business. This role is played precisely by a private equity firm.
The private equity guys become a part of the company, usually at the board level, and help foster growth, nurture the company to create additional value. For a new start-up, it could be commercializing a great idea, for established firms, it could be to helping the management improve their existing ideas or find companies with whom they could work joint handedly.
The private equity firmsPrivate 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., along with their investment, raise this money from banks, pension funds, endowments funds, savings account. As the company reaches its target growth, the investors sell their equity. The value which is created is shared among the people who provided the original investment.
Hence we can say that Private equity is not an advisor but an investor who creates or build better businesses.
One thing to keep in mind is that private equity funds invest in assets that are owned privately or that are publicly owned, but the private equity buyer plans to take private.
Who is a Private Equity Analyst?
- A Private Equity Analyst or PE Analyst is a person who works primarily for the private equity firms and conducts research, ratio analysis, and gives interpretations on private companies.
- Use due diligence, financial modeling techniques, and valuation methodsValuation MethodsDiscounted cash flow, comparable company analysis, comparable transaction comps, asset valuation, and sum of parts are the five methods for valuing a company. to assess the advantages of investing in a private company.
- Manage an investment portfolio or fund, which comprises partial or whole interest in the equity of the private companies in which they invest.
- Raise money from private companies, banks, and high net worth individuals to maximize returns beyond those offered by public stock exchangesPublic Stock ExchangesStock exchange refers to a market that facilitates the buying and selling of listed securities such as public company stocks, exchange-traded funds, debt instruments, options, etc., as per the standard regulations and guidelines—for instance, NYSE and NASDAQ..
- Experts who forecast the return on investment of a company and also define the best usage of certain investments;
What does a Private equity analyst do?
- Accurate valuation: The companies that the private equity firms target is privately owned, and hence the market price of their stock is not determined. Hence the role of an analyst becomes crucial to provide an accurate valuation of the company’s shares where it wants to invest.
- Fulfillment of investment objective: Another thing that a private equity analyst needs to determine is whether the investment in a particular company would meet the funds objective. For this, the analyst needs to do a thorough financial statement analysis and compute the correct present value of a company’s projected earnings.
- Determine optimal capital structure: There is a situation where the private equity firms would consider changing the capital structure of the company it invests in. Here the private equity analyst will have to work on the assumptions and prepare financial scenarios. With this, he/she could determine the optimal mix of debt and equity to maximize the return on investment.
Other things which could be included in the job profile of a private equity analyst are;
- Analyze new investment prospects
- Raise funds from corporates
- Conduct detailed financial analysisFinancial AnalysisFinancial analysis is an analysis of finance-related projects/activities, company's financial statements (balance sheet, income statement, and notes to accounts) or financial ratios to evaluate the company's results, performance, and trends, which is useful for making significant decisions such as investment, project planning and financing activities.
- Create financial models
- Create corporate presentations
- Write investment committee memorandums.
- Interact with the management
- Manage and observe the portfolio investmentsPortfolio InvestmentsPortfolio investments are investments made in a group of assets (equity, debt, mutual funds, derivatives or even bitcoins) instead of a single asset with the objective of earning returns that are proportional to the investor's risk profile.
- Provide backing to the structuring, due diligence, negotiation, and financing of the investments
- Provide periodic review reports of existing portfolio companies to the investors
- Conduct research and gather relevant data of the industry and competitors
Additionally, the tasks of the private equity analyst will depend on the investment strategyInvestment StrategyInvestment strategies assist investors in determining where and how to invest based on their expected return, risk appetite, corpus amount, holding period, retirement age, industry of choice, and so on. that a private equity firm undertakes at a particular point in time.
What are the Pre-requisites for a Private Equity career?
If you considering the entry-level jobs in private equity, it would be that of a Private Equity Analyst or Associate.
- If you apply for private equity analyst jobs, you would require a Bachelor´s or Master´s Degree in Finance, Economics, Investment Analysis, or Accounting.
- A Masters in Business Administration (MBA) specialized in finance, Chartered Financial Analyst (CFA), Chartered Financial Analyst (CFA), The Chartered Financial Analyst (CFA®) Program offers a graduate-level curriculum and examination program designed to expand your working knowledge and practical skills related to investment decision-making. would always be a plus.
- The work would be detailed and demanding; hence one might have to work for long hours, so ensure your lifestyle suits such kind of a job.
- It would involve a lot of interactions with firms, bankers, consultants to get your project rolling; hence you need to be good in communication skills and networking.
- The transactions are concentrated mainly on debt. So you need to sufficient knowledge of the terms and concepts, particularly a good understanding of syndicated bank loans and high yield bondsHigh Yield BondsHigh yield bonds are bonds that pay higher interest than others but are assigned lower credit ratings by popular credit rating agencies. Ratings below “BBB” from Standard & Poor and below “Baa” from Moody’s are due to additional credit risks involved in interest and principal repayment. that are generally used in buyouts.
- In countries like the UK and the USA, someone with a Bachelors’s degree can get a break into the equity sector.
- As a beginner or fresher, the experience can be dodged if the candidate shows good skills.
What skills must a Private equity analyst possess?
- Strong Industry knowledge: If you are planning to take up a private equity career, you need to possess strong knowledge of various industries and their business models, industry structure, it works, etc. This skill will enable you to work efficiently and keep your work up-to-date in this fast-paced environment. Especially if you want to make it to the top, it is important to develop excellent investment and business judgment, which could happen only if you are good at conducting research on the industries/portfolios you work upon.
- Analytical skills: As we already saw, the core work that a private equity analyst does is of analyzing and interpreting the financial statementsFinancial StatementsFinancial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels., prepare financial models, contemplate on various financial and economic scenarios. This kind of work would be required to provide financial insights into how a particular company stands financially, comparing it with the market conditions carrying out detailed research analysis. An analyst is expected to be good at multi-tasking, logical and analytical reasoning to come up with creative solutions to problems.
- People skills: As a PE analyst, you will have to interact with a lot of business insiders and a lot of outsiders to make contacts, which is very critical to your success. It involves interacting with the senior members of private equity firms to acquire intelligence on existing and potential investments and internally get the work done with your teammates. You should be capable of creating positive and productive relationships for the business. In all, it would require good spoken and written communication, leadership skills to get the work done.
- Valuation skills: The most fundamental skill that you would require would be valuing companies with different approaches. Companies in different sectors are valued differently. Hence you will need to learn the core valuation concepts, its application, and methods successfully.
- Allied skills: Other important points which need to be kept in mind are that since you would be expected to work for long hours most part of the week, you should be someone with a high energy level. You should be able to seamlessly use the Microsoft suite (Excel, MS Word, and PowerPoint). Inessential, you need to be a self-motivated professional who is practical, high on ethics, and result oriented.
What would be the typical working day of a private equity analyst?
When it comes to the number of working hours, it is not as bad as compared to investment banking. The day for a PE analyst would start around 9.00 am and end around 7.00 to 9.00 pm, depending on the work. You might have to work on weekends subject to work-related to some urgent deal. The below infographic would describe the typical tasks that a PE Associate or a Private Equity analyst would do throughout the day.
The work culture at PE forms either could be a casual work environment or even like traditional corporates where you work in cubicles. In addition, since the major part of their reimbursement is dependent on how well the investments do, there exists a culture of performance.
What would be the job and salary prospects for a Private equity analyst?
Private Equity Analyst Job Prospects
- Look for internships: If you have decided to make a career in private equity while you’re still studying, it would be great if you start early in this field and go for internships. This will enable you to have a hand-on experience of how the working environment is, you will be able to decide if you fit in there. If everything goes well and you are able to impress your employers, you can surely look forward to a fulltime placement there.
- Take up campus placement opportunities: Many avoid going for campus placements considering the salary figure companies offer to fresher’s. But there are top and mid-level equity firms that usually hire people from campuses’ and hence you need to keep a watch on the opportunities coming your way and seize them.
If you are experienced in investment banking, trading, consulting for a year or two in a specific industry, it is going to be considered by the recruiters.
One thing which needs to be kept in mind is while you prepare yourself for the interviews, do not prepare resumes, which are found very common. You need to match the skills and expertise you possess with what the company requires. Believe me, the generic kind of resumes would directly be got in the trash.
Private Equity Analyst Salary prospects
Coming to the important part- The Salary! This is going to be subjective and will take into consideration your skills, education, and experience.
- Your compensation as a PE Analyst includes base salary and bonus. Like other related fields, the bonus will be based on your and the fund’s performance, wherein higher weightage is given to funds’ performance.
- If we compare the compensation, it is marginally higher by 5% if you are an MBA as compared to not having an MBA.
- In New York, an average Private Equity analyst would earn 40,000 – $1,00,000 a year, and in London, its GBP 23,000–58,000.
# The leading private equity firmsPrivate 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. throughout the globe include Goldman Sachs Capital Partners, Kohlberg Kravis Roberts (KKR), The Blackstone Group, Apollo Management, and Bain Capital.
Private Equity Career Progression
The below table will define the Past (background), Present (Responsibilities), Career progress (Future) in Private equity.
|Private Equity||Background||Responsibilities||Career progress|
||Two years as an analyst before promotion to the position of an associate|
||Three years as an associate before promotion to the position of an Associate director|
||Two to three years in this role before promotion to Investment director|
||Minimum of two to three years to promotion to Director|
||Management succession in the firm offering opportunities Heading international expansion within or outside of the firm|
One great thing about challenging jobs like being a private equity analyst is that it provides you with invaluable experience. But it would be difficult for anyone to judge if this would be the correct career option for you. That decision would completely be yours and would depend upon your interests and skills. I hope the information I shared through this post proves useful and helps you to decide your future in this interesting field. All the very best! :-)
If you learned something new or enjoyed the post, please leave a comment below. Let me know what you think. Many thanks, and take care. Happy Learning!
This article is a complete guide on a Private Equity Analyst that provides you with details of what is a private equity, what is private equity analyst job profile, career progressions, skill set required, and salaries. You can learn more about Private Equity and Venture Capital from the following articles –