For most investment bankers, private equity is the next step. Working at private equity is same as at an investment bank. It could lead to longer working hours, especially during deal closings. Private equity firms tend to be small. Mostly small, operating with 10-15 employees or a group 2-3 people. As private equity firms hire a small number of people, the competition is high.
The work at private equity firms can get as challenging as at investment banking firms.
How private equity firms operate?
Though companies start as private, eventually they either turn public or stay private. When companies go public, they list themselves on stock exchanges and raise funds by selling their stocks. So companies investing in public stock are paid through stocks. Private equity firms, on the other hand, buy private equity from companies and are paid through distributions. Most private equity firms try to buy 100% company so that they can take complete control of the company and operate it their way and increase revenue.
What do private equity associates do?
A private equity associate is required to perform several tasks, including
- Analytical modeling – Associates are required to prepare reports for partners and principals to make better deal decisions. Generally, due diligence report and growth forecast are delivered by associates.
- Portfolio company – Private equity firms have a group of invested companies called portfolio companies. Associates are tasked to oversee their financials and maintain and up-to-date financial sheets.
- Review CIMs—CIM stands for Confidential Information Memorandum. CIMs contain information related to investment opportunities, typically received from investment banks. Associates review CIMs and look for investment opportunities and pass on the information to seniors.
- Fundraising – When new funds are being formed, associates assist with preliminary fundraising, while seniors work with clients and relationship.
Most private equity associates spend 2-3 years before moving to senior associate. A successful career path in private equity is a smoothing transitioning from senior associate to a Director/ Partner in 6-8 years.
What do you require to get into a private equity firm?
Private equity firms generally hire associates for the entry-level role who have 2-3 years of experience in investment banking. Just as in investment banking, associates need to have strong analytical and numerical analysis skills. A strong foundation in business finance is mandatory to perform well in the private equity associate role.
Taking private equity certifications is also a good way to acquire the skills required to get into private equity. People with a background in corporate finance background can get into private equity by picking up skills through certifications.
Most private equity firms do not hire fresh college graduates unless they have significant experience working in private equity. As a primary criterion, an applicant for private equity associate must have a bachelor’s degree in economics, finance, statistics, or accounting. If you have good 2-3 years of experience in investment banking, you are good to go.