Private Equity Firms: Industrial Aspects & Working Culture
Private Equity (PE) firms raise capital from investors and use it to buy companies. The investors or the Limited Partners and includes pension funds, family offices, funds of funds, endowments, high-net-worth individuals. They operate on the bought company, improve them, and sell them for a return on investment. PE firms earn a percentage of the investment returns. In brief, private equity firms get involved in fundraising, operational management, and investment.
The work in a private equity firm is interesting and engaging. If the asset’s value increases by 2x, 3x, or even 10x, then the investors reap all the gains. Get to know some of the industrial aspects of private equity.
Industrial Aspects of Private Equity Firms
- PE firms invest in all types of industries. They tend to invest in larger deals and acquire mature companies
- They are involved in their portfolio companies’ operations and growth during its hold period
- PE firms acquire majority stakes or full company using equity and debts. As the investments are generally longer, the LPs ought to lock up their money for years
- Investment bankers, consultants, and corporate development professionals are generally attracted toward private equity careers as the earnings are more
- The private equity recruitment process is structured and ‘on-cycle’, while smaller PE firms opt for ‘off-cycle’ recruiting
- Depending on the investment of funds, they are referred as:
- Growth equity funds – invest in mature companies to scale up their operations
- Leveraged buyout funds (LBO)- invest in mature companies to improve operational efficiency distressed funds- invest in companies facing difficulties
- Mezzanine funds-invest on companies who need additional risk capital
- Real estate funds- invest in properties
- Infrastructure funds- invest in public infrastructure like roads, bridges, etc.
- Fund of funds- invest in other private equity funds
Working in Private Equity Firms
For many, a career in private equity is the destination career. Most of the people who are interested to take acareer in finance opt for working in private equity firms. The main reason is that PE firms offer high salaries, compensation, and interesting work hours. People enjoy working with companies to know operation in-depth and closing large deals.
Though it is difficult to get into private equity jobs, once you are in and get engaged in deals, then you may advance and earn high salaries, bonuses, and carried interests. Moreover, your career gets progressed from Analyst →Associate→ Senior Associate→ Vice President→ Director or Principal →Managing Director or Partner.
The entry-level jobs in private equity include Analysts and Associates. Analysts are hired straight away from the business school and get involved in tasks like deal analysis, financial modeling, sourcing, due diligence, and portfoliocompany monitoring. Associates generally join after having an experience in Investment banking and drive deals to completion.
To get into a private equity career, you need
- An MBA graduation from top business schools with internships
- Work experience in financial modeling
- Networking and cultural fit
- Think critically and be unique
Many aspiring professionals take up certification programs in private equity to strengthen their knowledge and resume. Position your career in private equity to join the bandwagon.