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The Private Equity Career Path: How to Get into PE

Show Notes Of Podcast

A brief introduction to private equity

Private equity firms (often called ‘GPs’ or ‘General Partners’) acquire assets on behalf of their investors (also referred to as ‘LPs’ or ‘Limited Partners’), improve the operational and financial performance of those assets, and then seek to divest that asset (‘an exit’), returning a profit to the managers of the private equity fund and its investors.

At the beginning of 2020, McKinsey estimates that globally, private equity firms had over $4.1 trillion of assets under management.

Firms like BlackRock, Carlyle, and KKR are never far from the discussion when mega deals are happening these days, making them an attractive destination for graduates and professionals that are often already working in investment banking.

In this article, we look at careers in private equity in some detail, discussing the industry at large, how you get your foot in the door, where you might fit in, what your routine might look like, and how you’ll progress.

Undoubtedly, you’ll note some similarities with investment banking career, but may find that the specifics of a career in private equity appeal more to you. 

At the beginning of 2020, McKinsey estimates that globally, private equity firms had over $4.1 trillion of assets under management.

Firms like BlackRock, Carlyle, and KKR are never far from the discussion when mega deals are happening these days, making them an attractive destination for graduates and professionals that are often already working in investment banking.

In this article, we look at careers in private equity in some detail, discussing the industry at large, how you get your foot in the door, where you might fit in, what your routine might look like, and how you’ll progress.

Undoubtedly, you’ll note some similarities with investment banking career, but may find that the specifics of a career in private equity appeal more to you. 

A brief introduction to private equity

Private equity firms (often called ‘GPs’ or ‘General Partners’) acquire assets on behalf of their investors (also referred to as ‘LPs’ or ‘Limited Partners’), improve the operational and financial performance of those assets, and then seek to divest that asset (‘an exit’), returning a profit to the managers of the private equity fund and its investors.

The investors in private equity funds are typically pension funds, insurance funds, HNWIs, and even some other private equity funds.

Some private equity companies, among them Blackstone, Carlyle, and Apollo Global Management, have listed their shares on public indices meaning that even retailers can now invest in private equity.

Why work in private equity?

The fact that private equity draws so many investment bankers from their six-figure salaries suggests there must be something highly attractive about a career working with a general partner.

And indeed, there are several benefits to working in private equity:

  • Salaries in private equity (see below) are comparable to those in investment banking, and the consensus is that there’s also a better work-life balance.
  • A career in private equity promises a stimulating career that offers a mixture of fundraising, investing, and financial and operational management.
  • The typically flatter hierarchy that exists at private equity firms means that you’ll be involved in decision making from day one in your career in private equity.

Educational and professional requirements for careers in private equity

This heady mix of attractive salaries, improved work-life balance, and a stimulating work environment make careers in private equity an attractive draw for professionals across the spectrum of financial careers.

Unfortunately, this also means that it’s remarkably rare that private equity firms hire applicants without some relevant industry experience.

Even freshly minted MBAs will find it hard to land roles unless they have done at least some work in a related field.

In practice, this means that junior positions at large private equity companies are almost exclusively filled with ex-investment bankers (usually analysts and associates).

There is some flexibility on this at smaller private equity firms, where those with Big 4 and boutique investment bank experience are more common.

‘Private equity analyst’ roles also sometimes accept college graduates, but these roles are still the exception rather than the rule.

Traits and characteristics required for a career in private equity

As mentioned in a previous article on careers in investment banking, the banking industry tends to be dominated by certain personality types, even after blue chip investment banks have made belated moves to diversify their workforce.

Given that it draws so many of its employees from investment banking, you might expect private equity firms to have the same culture.

But in very general terms, the consensus is that the culture is quite different.

Private equity firms are typically looking for people that tick the following boxes:

  • Ability to construct high-quality financial models, industry analysis, and investment memorandums (for the fundraising process).
  • Willingness to work long hours
  • Exceptional analytical skills and ability to assess companies’ commercial potential (up to management level, you’ll mostly be working on deal origination).
  • Interested in business and operations, and looking at companies from a long-term perspective, rather than just from a buy-and-flip perspective.
  • Creative people, who have the ability to see synergies, value-creating opportunities, and ‘quick wins’ in operations, when looking at companies from the outside.

How to land a role in private equity

As mentioned above, the emphasis in hiring at private equity firms is usually in experience rather than pure educational background.

But that means that it tends to be more difficult rather than easier to get a foot in the door at a private equity firm. For one thing, there are fewer hires in private equity than investment banking.

Also, many private equity managers will hire from their old investment bank alumni network.

In practical terms, the only way to land a role at a private equity is through a similar financial position (investment banking or a transaction-related position at a Big 4 firm).

If you’re from a career that does not fall under this umbrella, you could do worse than add an M&A course to your qualifications and play on your operational experience, but this is a much more challenging - if not impossible - way to enter the industry. 

Read also:
Career path in mergers and acquisitions

Salaries in private equity

Salaries at private equity firms, like investment banks, depend on the size of the private equity firm.

The salaries at the high end of private equity can be astronomical. In the middle market, considerably less so.

The figures below provide some detail on what you can expect in terms of salaries in different roles in private equity.

Carry (or ‘carried interest), like bonuses in investment banking depends on the performance of the private equity firm.

It refers to the percentage of profits generated by the private equity firm’s portfolio companies that the employees receive above their management fees.

So, in addition to management fees of 2%, private equity firms will typically take 20-25% of profits (the carried interest) before returning the remainder to their investors. So the typical salaries in PE are:

  • Associate - $150-$300K
  • Senior Associate - $250-$400K
  • Vice President (VP) - $350-$500K
  • Director or Principal - $500-$800K
Private Equity Salaries

Conclusion

Careers in private equity offer an excellent alternative to investment banking, with the caveat that investment banking is the most common route in.

Unlike investment banking, where the bankers play the role of intermediaries, roles in private equity will involve getting your hands dirty in the company’s operations, ensuring that the investment makes a positive return for the fund and its investors.

Combine this stimulating environment with the ability to earn a serious salary on top of a decent work-life balance, and it’s little wonder why roles in private equity are always in such high demand.

software for private equity

At the beginning of 2020, McKinsey estimates that globally, private equity firms had over $4.1 trillion of assets under management.

Firms like BlackRock, Carlyle, and KKR are never far from the discussion when mega deals are happening these days, making them an attractive destination for graduates and professionals that are often already working in investment banking.

In this article, we look at careers in private equity in some detail, discussing the industry at large, how you get your foot in the door, where you might fit in, what your routine might look like, and how you’ll progress.

Undoubtedly, you’ll note some similarities with investment banking career, but may find that the specifics of a career in private equity appeal more to you. 

A brief introduction to private equity

Private equity firms (often called ‘GPs’ or ‘General Partners’) acquire assets on behalf of their investors (also referred to as ‘LPs’ or ‘Limited Partners’), improve the operational and financial performance of those assets, and then seek to divest that asset (‘an exit’), returning a profit to the managers of the private equity fund and its investors.

The investors in private equity funds are typically pension funds, insurance funds, HNWIs, and even some other private equity funds.

Some private equity companies, among them Blackstone, Carlyle, and Apollo Global Management, have listed their shares on public indices meaning that even retailers can now invest in private equity.

Why work in private equity?

The fact that private equity draws so many investment bankers from their six-figure salaries suggests there must be something highly attractive about a career working with a general partner.

And indeed, there are several benefits to working in private equity:

  • Salaries in private equity (see below) are comparable to those in investment banking, and the consensus is that there’s also a better work-life balance.
  • A career in private equity promises a stimulating career that offers a mixture of fundraising, investing, and financial and operational management.
  • The typically flatter hierarchy that exists at private equity firms means that you’ll be involved in decision making from day one in your career in private equity.

Educational and professional requirements for careers in private equity

This heady mix of attractive salaries, improved work-life balance, and a stimulating work environment make careers in private equity an attractive draw for professionals across the spectrum of financial careers.

Unfortunately, this also means that it’s remarkably rare that private equity firms hire applicants without some relevant industry experience.

Even freshly minted MBAs will find it hard to land roles unless they have done at least some work in a related field.

In practice, this means that junior positions at large private equity companies are almost exclusively filled with ex-investment bankers (usually analysts and associates).

There is some flexibility on this at smaller private equity firms, where those with Big 4 and boutique investment bank experience are more common.

‘Private equity analyst’ roles also sometimes accept college graduates, but these roles are still the exception rather than the rule.

Traits and characteristics required for a career in private equity

As mentioned in a previous article on careers in investment banking, the banking industry tends to be dominated by certain personality types, even after blue chip investment banks have made belated moves to diversify their workforce.

Given that it draws so many of its employees from investment banking, you might expect private equity firms to have the same culture.

But in very general terms, the consensus is that the culture is quite different.

Private equity firms are typically looking for people that tick the following boxes:

  • Ability to construct high-quality financial models, industry analysis, and investment memorandums (for the fundraising process).
  • Willingness to work long hours
  • Exceptional analytical skills and ability to assess companies’ commercial potential (up to management level, you’ll mostly be working on deal origination).
  • Interested in business and operations, and looking at companies from a long-term perspective, rather than just from a buy-and-flip perspective.
  • Creative people, who have the ability to see synergies, value-creating opportunities, and ‘quick wins’ in operations, when looking at companies from the outside.

How to land a role in private equity

As mentioned above, the emphasis in hiring at private equity firms is usually in experience rather than pure educational background.

But that means that it tends to be more difficult rather than easier to get a foot in the door at a private equity firm. For one thing, there are fewer hires in private equity than investment banking.

Also, many private equity managers will hire from their old investment bank alumni network.

In practical terms, the only way to land a role at a private equity is through a similar financial position (investment banking or a transaction-related position at a Big 4 firm).

If you’re from a career that does not fall under this umbrella, you could do worse than add an M&A course to your qualifications and play on your operational experience, but this is a much more challenging - if not impossible - way to enter the industry. 

Read also:
Career path in mergers and acquisitions

Salaries in private equity

Salaries at private equity firms, like investment banks, depend on the size of the private equity firm.

The salaries at the high end of private equity can be astronomical. In the middle market, considerably less so.

The figures below provide some detail on what you can expect in terms of salaries in different roles in private equity.

Carry (or ‘carried interest), like bonuses in investment banking depends on the performance of the private equity firm.

It refers to the percentage of profits generated by the private equity firm’s portfolio companies that the employees receive above their management fees.

So, in addition to management fees of 2%, private equity firms will typically take 20-25% of profits (the carried interest) before returning the remainder to their investors. So the typical salaries in PE are:

  • Associate - $150-$300K
  • Senior Associate - $250-$400K
  • Vice President (VP) - $350-$500K
  • Director or Principal - $500-$800K
Private Equity Salaries

Conclusion

Careers in private equity offer an excellent alternative to investment banking, with the caveat that investment banking is the most common route in.

Unlike investment banking, where the bankers play the role of intermediaries, roles in private equity will involve getting your hands dirty in the company’s operations, ensuring that the investment makes a positive return for the fund and its investors.

Combine this stimulating environment with the ability to earn a serious salary on top of a decent work-life balance, and it’s little wonder why roles in private equity are always in such high demand.

software for private equity

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