The Lowdown: A Career in Private Equity for Analysts & Interns.
Private equity has long been considered a highly competitive and secretive profession which is notoriously difficult for those to get into if they don’t have significant experience.
It was often the case that private equity firms would only consider hiring applicants with 2-3 years of significant experience, usually individuals coming from investment banks or other buyside firms, however, the growth of the market and the increase in liquidity made available to management teams have led private equity players to rethink their organization.
The maturity of the industry is now prompting an increasing proportion of funds to recruit their own analysts (usually graduates out of university or those with 1-2 years of IBD/buy side exposure) and train them at the early stages of their career.
Therefore, although private equity analyst opportunities remain very limited compared to the recruitment of ‘pool of analysts’ by investment banks or other financial firms, there are increasing opportunities for young graduates to transition into a private equity firm with limited experience.
What is a Private Equity Analyst responsible for?
A private equity analyst is responsible for supporting the senior management/partners throughout the investment “life cycle”.
The 3 main stages of the investment lifecycle are:
The sourcing of investment opportunities, mainly carried out by the Private Equity firms senior managers/partners.
Analysis of potential investments and due diligence work.
Monitoring of portfolio investments.
How are the interview processes structured?
Private Equity interviews are particularly challenging.
They are usually in the form of oral interviews, case studies and/or a financial modelling test.
The process usually includes both technical questions such as M&A, understanding of the business and the ecosystem, as well as questions of "business sense". The main objective is to test the candidate's investor spirit and awareness of the financial markets.
At the Analyst level, there are usually around 4 to 5 rounds of interviews including a technical case often including an LBO model, a strategic case study and/or a financial analysis.
What can I expect from a career in Private Equity?
Private equity teams are usually lean teams.
Firms will usually only hire a handful of Analysts and Interns every year.
It is not uncommon to be the only intern or analyst in the firm. The benefit of this is that the junior is offered considerable exposure, which has an advantage of being extremely formative. On the other hand, these teams do not offer the same network and supervision as the established programs of investment banks or other larger financial firms, which are often considered as the continuity of university and sought after by some applicants seeking more guidance and mentorship.
You need to feel comfortable working independently with limited guidance.
In investment banking/advisory with bulge bracket firms, the tasks of juniors are much more limited and everyone answers to their direct superior. In private equity, juniors are exposed to deals and partnering with senior members of the team early on in the tenure with the business, and it is expected that these juniors are able to fulfil their tasks independently such as; producing financial analysis, market research, conducting expert calls, process management . There is less of a hierarchy in private equity and the junior members are more easily empowered getting involved in deal processes and negotiations. As such, juniors need to feel comfortable with working independently and having the confidence to proactively reach out for assistance when needed.
What is the difference between a mid-cap and large cap private equity firm?
Large Cap Firms
Depending on the funds and the teams, the role of the Intern and the analyst differ.
Leverage Buy Out or LBO is the best known practice in the world of private equity.
The LBO is historically widely practiced by so-called large cap funds. At the junior level, the work is as rigorous as is required by an investment bank for the execution work. The analyst's responsibilities require very advanced financial modelling and operating model construction techniques. The study of business models, market, growth opportunity or operational improvement in the conduct of due diligence are added to this non-exhaustive list. Due to the nature of large-cap transactions (secondary or tertiary LBO, public to private) and the size of the companies studied, the valuation and monitoring of market data are essential for analysis.
As an intern, the highly processed organization of certain major international funds allows you to learn banking protocol while offering exposure to all players in the transactional ecosystem (bankers and consultants). Some even offer graduate programs similar to those of banks.
Mid Cap Firms
An intern in a mid-cap team is often entrusted with the monitoring of a company in the portfolio. They may also at times be entrusted to partner with a senior manager to have direct interactions with personnel within the companies they have invested into.
In the small/mid cap segment, the operational, strategic and human aspects are significant in the completion of a transaction. Greater freedom can therefore be given to mid-cap private equity analysts, the hierarchy is less strong and individuals will gain access to multiple investments which gives more exposure to the intern/analyst.
The best way to assess the quality of an internship/analyst program, the culture and exposure offered with a mid-cap firm is from interns/analysts past of present.
How can my career develop with Private Equity in the long term?
A private equity candidate needs to show rigor and curiosity. Although private equity has the reputation of offering a better life balance than investment banking, the days of the investor can be long and dense, especially with the large-cap firms which hours are similar to investment banking.
The analysis required to produce investment notes requires solid technical skills as well as a real interest and curiosity for discovering business models and understanding different markets. However, these analysis are only decision-making tools. Ultimately, the investor must form an opinion and build his/her “mindset”, a mix of operational, commercial, strategic and even psychological skills.
Moreover, the growth of the industry, in addition to opening the doors of investment to young candidates, has enabled the proliferation of Private Equity players. Today there is a wide variety of funds investing in different sizes of companies and according to their own strategies.
An investment profession in private equity can be seen as a long-term profession, unlike M&A/Advisory roles which are punctuated by transactions. Investors in private equity take on a large share of responsibility per each investment as members of the management team usually receive ‘carried interest’ which is a mechanism for profit-sharing in the performance of the investments made. Also, the role of the investors becomes fulfilled once an investment is made ; the holding period in a classic fund is on average 5 years, meaning that seniors often like to stay with one firm for a long period of time to see through the investment and earn their carried interest, which explains why the turnover is so low.
