Wondering whether working in private equity is an awesome career path that enables aspiring young graduates to make a lot of money right out of school? The work itself aside, understand the industry is still of the utmost importance as this is what the truly passionate players in this industry concern the most. Most importantly, getting into this industry is more difficult than other finance fields. This industry is far smaller. Despite most of them do not impose rigid educational requirements, most firms love to hire those graduates who rank highly in their graduating classes or those who have some investment banking experience. People in this field are generally cool and pleasant. Still, what marketable attributes or skills you think you are able to bring to the negotiation table still matter them the most, especially during deal closings. Why? They are numbers driven.
What is Private Equity?
In layman’s term, private equity firms attract capital from high net worth individuals and institutional investors. They then provide long term, committed share capital to help those businesses grow and succeed. They earn money from the management fees as well as from the carried interests (shares of profits — where the real returns are) from investments. Most of these industrial players will always strategize potential exit routes in their transactions from the start. After all, their ultimate goal is to realize the return on the investment that they’ve promise to their investors after a period of time. It should come as no surprise for you to learn that a PE guy’s decision about whether or not to invest in a company depends very much on the solid exit opportunities they can foresee. Most of these PE houses are smaller than investment banks. You may see the size range of the firms can be from a large investment team of hundreds employees to an only two-man shop.
Private equity is an umbrella term for various types of investments in private companies. There are various types of private equity funds based on their respective specialization and purpose. Some of those can be the one you may be interested to join one day. The ones that are much easier to be understood are buyout, venture capital, growth equity based on the company funding life cycle.
Is going straight into PE possible?
If you are a graduate aiming for junior-level roles in this field, you need to know that most of the boutique firms do not have highly structured recruiting processes compared to other well-established firms in finance services field. In fact, total compensation of a junior analyst in PE may be lower than those in Investment banks. If you’d done a thorough research, you know that the chances to land a job at junior levels in private equity is realistically low as most of the hires are based on the deal experience.
How to break into this field?
The first step to improve your chance of landing a PE job is to start networking. Begin following all those private equity and investment banking firms through LinkedIn and understand those industrial trends. You need to learn which companies that are currently in fundraising stage as well as the latest update on those portfolio companies of your dream investment firms. Spend time learning technical side and case studies, particularly modelling as you need to know that a lot of bankers and similar industrial practitioners have already been staring at spreadsheet models for years. It’s a cliché, but asking for a volunteer in related events or conferences or apply for an internship in the firm is also a good idea. Be prepared that you may send out copious requests, and only one or two are nice enough to talk to you via email or over the phone. Most of the people you reach out simply won’t reply or you will just get a generic rejection email. It ultimately comes down to what you really desire and your motivation to succeed.
What are the key roles as an entry-level staff in PE?
At the junior level, the key roles are a combination of deal sourcing and screening for partners. You will also provide direct support or analysis for the deals that the partners are seriously considering. Your degree of involvement into the deal process include due diligence, executing transactions on either the buy side or sell side, etc. Most of your time spent on modelling or producing presentations and documents related to potential investments. There’s less manpower available in smaller firms. Technically speaking, everything from cold call to due diligence to legal framework to closed deal has to be sorted out by the transaction team alone. This can be sometimes mentally stressful when you delve into the realm of the unknown. Soon, you will also be used to the cold emails and cold calls you have made have been ignored during the process. As your work can be extremely varied, strong interpersonal and communication skills are a must. The level of responsibility definitely makes you feel valued when you have the chance to enhance the visibility of the firm and its portfolio companies.
Have a backup plan
You need to know that you will be coming up against much older players with far more experience. You may find it hard to break into PE directly, try to land internships or graduate roles in advisory or investment banking fields instead. Yet, you may also struggle to get a role in those fields either as those fields are competitive as well. You may also consider corporate development related roles in their portfolio companies, and leverage those valuable skillset and network you have built on to move into private equity. All in all, if you are extremely passionate and are willing to spend hours doing ground work, modelling, cold mails, networking, etc., the career opportunities in this field can be something really exciting, and you should seriously consider.
Would you like to learn more about Private Equity? Click here to connect with Andrew Teo, Venture Manager at Tan Chong Group now!
Soon Kit is an associate at a boutique advisory & private equity house, Ingenious Haus Group. He provides direct support to the day-to-day responsibilities of the partners and deal team of the firm in analytical work, strategy and deal structuring.