The private equity industry offers a lucrative career: Handsome salaries, perks, benefits, and a glamorous lifestyle.
An associate, the entry-level role at the PE firms, can earn anywhere between $1,00,000 – $1,50,000.
Everything that the industry offers is highly desirable and sought –after. What’s concerning, however, is the challenge that comes with starting a career in private equity.
Getting a break in private equity is a tough nut to crack because of the demand for skills.
Let’s understand the private equity industry a little better.
Overview of the private equity industry
A private equity firm pools capital from high net worth individuals and institutional investors.
The firm invests the capital in several companies, buying an equity stake in them. In return, private equity firms receive a share of yearly profit (20-25%) when the company receiving funds goes public or is sold privately to another company.
The firm also regularly receives a management fee (nearly 2%) from the company receiving investment.
The period of investment for a firm usually ranges between 5-7 years.
In this time frame, the firm expects to generate a substantial return on the investment either by selling the company completely or from the proceeds of taking the company public.
There are four prominent roles in a private equity firm:
- Senior Associate
- Vice presidents and principals
- Managing directors and partners
- Private equity associates: Private equity firms do not hire fresh graduates. Associates usually have an investment banking experience. Though associates are at the lowest rung of the firm, they have substantial experience in the financial services sector.
An associate is tasked with creating CIMS (Confidential Information Memorandums), which is a document containing information related to potential investment opportunities. They also assist senior personnel in research, due diligence, financial modeling, and writing reports. Monitoring performance of portfolio companies, sourcing deals, handling transactions, and fielding phone calls from investors are other tasks that fall under the responsibilities of associates.
2. Vice presidents and principals
Vice presidents and principals supervise associates and assist managing directors and partners in crafting investment strategies and in negotiation with target companies for investment.
Vice presidents are also responsible for generating investment opportunities by identifying companies to acquire. They are directly involved in generating investments for the firm. Vice presidents and principals qualify for a significant percentage of the profits that they are assigned to work on.
Vice presidents and principals also establish and maintain relationships with investment bankers, business consultants, and other financial professionals who lead them to investment opportunities. The salary of vice presidents and principals can range between $150,000 and $300,000.
- Managing directors and partners
Managing directors are the topmost executive at a private equity firm. These are responsible for gathering funds and have the final say on investments and how a deal is structured. Managing directors also actively seek investors and manage the funds. They receive profits as a percentage of the funds under their management. Their salary goes upwards of $3million.
Skills for a private equity career
A private equity investment professional should have a gamut of skills. Strong business analytical skills are required among other skills. A fund manager is expected to have to be both technically and intuitively strong. In addition, to excel in a career in private equity, you need the following skills –
1. Financial modeling
2. Leveraged buyout modeling
3. LBO modeling
4. M&A modeling
5. General financial modeling
Education for a private equity job
Experienced investment banking analyst are the first choice among PE firms for an associate role.
Candidates with extensive experience in corporate finance with strong skills are considered for the role.
In both cases, an MBA is mandatory to start a career in private equity.
Get a private equity certification: Certified Private Equity Professional (CPEP)
Getting a private equity job is tough.
As PE firms tend to have small staff, it is even more challenging to get into a private equity firm.
A private equity certification like CPEP (Chartered Private Equity Professional) would increase value and improve your chances of getting a private equity job.
CPEP demonstrates that you have strong finance skills and a comprehensive understanding of the PE industry; ready for a private equity job.