De-mystifying the world of Private Equity

Private Equity is arguably one of the most sought-after careers in the finance sector, even above investment banking. Private Equity has a lot to offer ambitious and analytical graduates, so read on to see where you fit in. 

An Overview

Like investment banking, the entry level role for bright graduates in private equity is that of an analyst. If you have an MBA or Masters degree, you may start as an Associate but with competition for jobs becoming increasingly fierce, these roles often only go to those with the right levels of work experience on their CV. 

Private Equity (PE) focuses on companies that are not publicly traded on a stock exchange. The purpose of PE firms is to generate wealth-creation transactions using a variety of financial instruments, such as leveraged buyout transactions, partial stake purchases in public companies and investments in a range of privately-owned companies.

The reasons a PE firm (much like a venture capital firm or angel/private individual investor) invests are multifarious but a typical activity will be providing capital in exchange for stock to help companies to grow, develop new products or restructure. Sometimes the PE firm simply wishes to own the business.

Put simply, the goal of private equity firms is to identify, invest in and enhance the value of good and great businesses in order to generate a return. 

The sale of the sandwich chain Pret a Manager back in 2008 is a good example of a successful investment by a PE firm. The firm Bridgepoint fought off competition to gain a controlling stake in Pret. The buyout valued Pret at £345 million (it had a turnover of around £150 million) - and Bridgepoint clearly saw the potential value in Pret's financial future.

Your role as a graduate in private equity

As a graduate analyst in private equity, much like investment banking, your role will be to analyse the economics of companies and potential deals; research new deals and investment areas; prepare relevant documentation for partners and coordinate the research and due diligence that is required for a deal to take place. 

It's likely that you'll focus on a particular sector area or industry and through different projects and experiences become an expert in that field. 

Top skills to excel

  • You'll need to be analytical with great attention to detail. Your work needs to stand up to scrutiny by the major players in a deal
  • Stamina. The hours can be very long, especially as a potential deal gains momentum and moves towards closure. You'll need to be flexible and ready to commit to what your firm needs 
  • You'll be good at building relationships and have strong communication skills. This is critical both at the start of your PE career and as you progress as you'll need to influence others, win new business and lead a team and business

How to get into private equity

Even for the best and brightest graduates, getting a foothold on the PE ladder is extremely competitive, largely because the rewards have the potential to be so lucrative. 

The private equity firms who recruit analysts will typically have some sort of Summer Analyst programmes - whereby you will work full time over the summer holidays as an undergraduate. Competition for places on these programmes is very very competitive so plenty of preparation is needed. 

Network where you can. Utilise your university's alumni networks to see if anyone has gone onto a career in private equity. Ask if you can meet them for a coffee and come armed with questions. A polite email is usually the best approach and if you manage to secure a meeting, always offer to pay for the coffee (they're giving up their time after all.)

As we've discussed, the typical entry point for a graduate is as an analyst, but today most people enter a private equity firm through prior experience as an analyst in an investment bank.  

Other routes

Another route could be via management or strategy consulting. At a consulting firm you can gain exposure to all aspects of business and finance which means that the analytical and commercial skills you gain there can provide a sound springboard for entry into a full time private equity role.

And finally...  

There are no set guarantees that after a certain amount of years experience, you will gain a foothold in the private equity sector. As we've mentioned, roles in this sector are highly sought-after and you'll really need to prove to a firm that you have both the hard and soft skills to add value to their business.