How to become a private equity partner

Many investment bank analysts see private equity (PE) as the next step in their financial career. Private equity firms are smaller than investment banks, so there are fewer jobs, and competition for these positions can be fierce.

Private equity firms hire their entry-level employees as assistants, and usually require at least two years of investment banking analyst experience. Similar to investment banks, employees of private equity firms can work extremely long hours, especially during the completion of the transaction.

Key points

  • Private equity (PE) investment involves acquiring a private company, usually changing its management and business model, and then selling it for profit.
  • Private equity partners work closely with client companies or potential clients to conduct due diligence.
  • Private equity professionals must raise funds from outside investors, usually wealthy individuals or organizations.
  • Successful employees can earn six-figure income within a few years.

Private property

Most companies are private at the beginning, but if they find that the benefits are greater, public companies can also sell their public shares and privatize them. One of the biggest differences between private equity and public equity is that private equity investors usually get paid through distribution rather than stock accumulation.

Private equity investors usually receive dividends throughout the life cycle of their investment. Private equity firms mostly buy established mature companies. Due to inefficiency, these companies may be deteriorating or not getting the profits they deserve. Private equity firms acquire these companies and simplify operations to increase revenue. On the other hand, venture capital companies mainly invest in start-up companies with high growth potential.

Private equity companies mostly buy 100% ownership of their investment companies. Therefore, the company completely controls the company after the acquisition.

From the perspective of a start-up company, private equity usually means having to please smaller clients. This also means fewer restrictions and investment guidelines from regulatory agencies including the US Securities and Exchange Commission.

Private equity firms attract capital from high-net-worth individuals and institutional investors such as foundations, endowments, and pension funds. They invest capital in private holding companies by directly buying the company or investing capital and cooperating with the company’s management. Private equity firms make money through fees charged to investors and incidental income from investments.

Well-known private equity firms include TPG Capital, Warburg Pincus, Carlyle Group, Kohlberg Kravis Roberts, Blackstone Group and Apollo Management. Most companies are small and medium-sized investment organizations, ranging in size from hundreds of employees to two-person stores.

job description

Private equity companies are usually much smaller than investment banks, and the corresponding hierarchies are also flatter. Entry-level private equity partners can work closely with company leaders and partners at every step of the transaction. From the beginning to the completion of the transaction, employees will feel great satisfaction in the process of seeing the transaction.

Responsibilities as a private equity partner can include the following:

  • Analytical modeling: The main function of the assistant is to provide the person in charge and the partner with all the analysis needed to make an informed decision about the transaction. Common tasks include preparing preliminary due diligence reports and using growth forecast modeling.
  • Portfolio company monitoring: Employees are usually assigned to portfolio companies for monitoring and must keep up-to-date financial status.
  • Review CIM: A CIM or Confidential Information Memorandum is a document used by investment banks to provide data about new investment opportunities. Employees receive CIM, screen potential opportunities that fit the company’s framework, and provide a simple one-page summary for senior teams.
  • Fundraising: When the new fund is established, the partners assist in the initial fundraising, while the senior management handles most of the relationship and client interface.

Most private equity partners will work in their positions for two to three years before being considered as senior partners. A successful career path in a private equity company may look like this:

  • Senior assistant (two to three years), vice-principal/principal (two to four years), director/partner

Education and training

Candidates should have a bachelor’s degree in finance, accounting, statistics, mathematics or economics. Unless students have important private equity internships or work experience, private equity firms usually do not directly hire college or business school graduates.

The most important qualification for becoming a private equity analyst is two to three years of investment banking analyst experience. Some companies also hire former management consultants. Getting an interview requires both a strong private equity network and knowledge of the right headhunting company. Most private equity firms use headhunters as gatekeepers for these jobs.

Salary and compensation

Total compensation varies widely because in addition to salary, employees also receive bonuses that reflect completed transactions and the income generated by transactions. For entry-level assistant positions, the bonus percentage is usually a fixed percentage and has less variability than upper management.

  • Assistant for the first year: 50,000 to 250,000 US dollars, with an average of 125,000 US dollars. The average salary in the first year may be $81,000, and the bonus is 25-50% of the base salary.
  • Assistant for the second year: 100,000 to 300,000 US dollars, with an average of 135,000 US dollars.
  • Assistant for the third year: US$150,000 to US$350,000, with an average of US$160,000.

Bottom line

Private equity partners participate in the transaction from start to finish. Even junior employees are indispensable members of the team and require strong analytical and leadership skills.

It is difficult to find one of these sought-after positions because the job is satisfying and financially rewarding. Starting as a summer intern may be the most direct route, but many employees also enter the field from investment banking or management consulting.

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