Private Equity Analyst Guide
A private equity analyst looks at undervalued companies so that a private equity investor can buy the company, take it personally, and earn profits.
Private equity can be broadly defined as investment in private, unlisted companies by assuming higher risks and hoping for substantial returns. Becoming a private equity analyst is a dream for almost any finance professional.
Do you think getting a private equity analyst job is easy? Unfortunately, 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 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.
Table of contents
- Private Equity Analyst Guide
- What is Private Equity?
- Who is a Private Equity Analyst?
- What does a Private Equity Analyst do?
- What are the Pre-requisites for a Private Equity career?
- What skills must a Private equity analyst possess?
- What would be the typical working day of a private equity analyst?
- What would be the job and salary prospects for a Private Equity Analyst?
- Private Equity Career Progression
- What Next?
- Recommended Articles
- A private equity analyst identifies undervalued companies that can be acquired and strategically managed by private equity investors for the purpose of generating substantial profits.
- Private equity analysts receive compensation through a combination of a fixed base salary and performance-based bonuses, with the bonus amount primarily determined by the overall performance of the fund and the analyst’s contribution.
- Some of the top private equity firms globally include industry leaders such as Goldman Sachs Capital Partners, Kohlberg Kravis Roberts (KKR), The Blackstone Group, Apollo Management, and Bain Capital.
What is Private Equity?
To help you understand this, answer my question: What do start-ups and well-established companies have in common? It is simple; they both require investment/capital to grow. This growth could mean building more manufacturing plants, recruiting more people, or rejuvenating existing products. Such investments could also help buy another company or save a company from closing down.
So, where does this investment come from? It could be borrowing from some bank, selling shares, or raising money from the stock exchange.
But sometimes, companies look for more than just the money flowing into 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, help foster growth, and nurture the company to create additional value. For a new start-up, it could be commercializing a great idea; for established firms, it could help the management improve their existing beliefs or find companies with whom they could work jointly easily.
Along with their investment, 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. raise this money from banks, pension funds, endowments funds, and savings accounts. As the company reaches its target growth, the investors sell their equity. The value 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 makes 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 equity.
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Who is a Private Equity Analyst?
- A Private Equity Analyst or PE Analyst is a person who works primarily for private equity firms and conducts research, does 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 forecast a company’s return on investment and define the best usage of certain investments.
What does a Private Equity Analyst do?
- Accurate valuation: The private equity firms’ target companies are privately owned, so 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 in which it wants to invest.
- Fulfillment of investment objective: A private equity analyst needs to determine whether the investment in a particular company would meet the funds’ goal. 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. The private equity analyst must work on the assumptions and prepare financial scenarios. With this, they could determine the optimal mix of debt and equity to maximize the return on investment.
Other things that one can include in the job profile of a private equity analyst are: –
- Analyzing new investment prospects
- Raising funds from corporate
- 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.
- Creating financial models
- Creating corporate presentations
- Write investment committee memorandums.
- Interact with the management
- Manage and observe the portfolio investments Portfolio 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 on 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 Prerequisites for a Private Equity career?
If you consider 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 require a bachelor’s or master’s degree in finance, economics, investment analysis, or accounting.
- A Master of Business Administration (MBA) degree specializing in finance and 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 a job.
- It would involve a lot of interactions with firms, bankers, and consultants to get your project rolling. Hence, it would help if you were good at communication skills and networking.
- The transactions are concentrated mainly on debt. So, you need 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. generally used in buyouts.
- In countries like the UK and the USA, someone with a bachelor’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 a strong understanding of various industries and their business models, industry structure, their works, etc. This skill will enable you to work efficiently and keep your work up-to-date in this fast-paced environment. In addition, especially if you want to make it to the top, it is important to develop excellent investment and business judgment, which could happen if you are good at researching the industries/portfolios you work upon.
- Analytical skills: As we already saw, the core work that a private equity analyst does is analyzing and interpreting 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., preparing financial models, and contemplating various financial and economic scenarios. One would require this work to provide financial insights into how a particular company stands financially, compare it with market conditions, and conduct a detailed research analysis. An analyst is expected to be good at multitasking and logical and analytical reasoning to develop creative solutions to problems.
- People skills: As a PE analyst, you will have to interact with many business insiders and outsiders to make contacts, which is 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. It would require good spoken and written communication and leadership skills to get the work done.
- Valuation skills: The most fundamental skill you would require is valuing companies with different approaches. Companies in various sectors are valued differently. Hence, you will need to learn the core valuation concepts, applications, and methods successfully.
- Allied skills: Other important points that need to be kept in mind are that since you would be expected to work for long hours most of the week, you should be someone with a high energy level. You should be able to seamlessly use the Microsoft Office suite (Excel, MS Word, and PowerPoint). Essentially, it would help if you were 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?
It is not as bad as investment banking regarding the number of working hours. The day for a PE analyst would start around 9.00 a.m. and end around 7.00 p.m. to 9.00 p.m., depending on the work. You might have to work on weekends subject to work-related to some urgent deal. The below infographic describes the typical tasks that a PE associate or a Private Equity Analyst would do throughout the day.
The work culture at PE 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 depends on how well the investments do, there is 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 studying, it would be great if you start early in this field and opt for internships. That will enable you to have a hands-on experience in the working environment, and you will be able to decide if you fit in there. If everything goes well and you can impress your employers, you can look forward to a full-time placement there.
- Take up campus placement opportunities: Many avoid attending campus placements considering the salary figures companies offer to freshers. But top-level and mid-level equity firms usually hire people from campuses. Hence, you need to watch the opportunities coming your way and seize them.
If you are experienced in investment banking, trading, and consulting for a year or two in a specific industry, it will be considered by the recruiters.
One thing that needs to be kept in mind is that while you prepare for the interviews, do not prepare very common resumes. Instead, you must match the skills and expertise with the company’s requirements. One would directly get the generic kind of resume in the trash.
Private Equity Analyst Salary prospects
Coming to the important part- Salary! That will be subjective and consider your skills, education, and experience.
- Your compensation as a PE analyst includes a base salary and bonus. Like other related fields, the bonus would be based on your and the fund’s performance, wherein higher weightage is given to the funds’ performance.
- If we compare the compensation, it is marginally higher by 5% if you are an MBA than not.
- An average private equity analyst in New York would earn $40,000 – $1,00,000 annually. In London, its GBP is 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), and career progress (future) in private equity.
|Private Equity||Background||Responsibilities||Career progress|
|Analysts||Two years as an analyst before promotion to the position of associate.|
|Associates||Three years as an associate before promotion to an Associate Director position.|
|Associate Director||Two to three years in this role before promotion to Investment Director.|
|Investment Director||Minimum two to three years to promotion to Director|
|Director||Management succession offers opportunities heading international expansion within or outside 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 depend upon your interests and skills. I hope the information I shared through this post proves useful and helps you decide your future in this interesting field. All the very best!
If you learned something new or enjoyed the post, please comment below. Let me know what you think. Many thanks, and take care. Happy learning!
Frequently Asked Questions (FAQs)
A private equity analyst is typically an entry-level position that involves analyzing investment opportunities and conducting due diligence. In contrast, a private equity associate is a more senior role responsible for deal execution, portfolio management, and investor relations.
A career as a private equity analyst can be rewarding for individuals interested in finance, investments, and business analysis. It offers exposure to deal-making processes and potential for career growth within the private equity industry.
Private equity firms, investment banks, asset management firms, and other financial institutions are among the entities that recruit private equity analysts. The recruitment process often involves interviews, case studies, and assessments to evaluate candidates’ analytical skills and understanding of the private equity industry.
This article is a guide to Private Equity Analyst. We discuss the details of private equity, job profile, career progressions, required skillsets, etc. You can learn more about private equity and venture capital from the following articles: –