How To Get Into Private Equity Investing


How To Get A Job In Pe

How to Get Into Private Equity ($300K 2 years out of college) | Process & Study Materials

There are several common paths to make it into private equity:

  • Investment Banking – This is by far the most common way to get into top tier private equity firms. These firms recruit top analysts out of investment banking analyst programs. Analysts interview for PE shops early in their first year and then work at their banks for 2 years before moving over
  • Direct from Undergrad – While less common, PE firms have been creating post undergrad programs to hire students direct from university. Learn how to jump straight to the buyside on WSO
  • Consulting – Similar to banking, some PE shops recruit top candidates out of consulting firms as their skills are applicable to the management changes that are needed at PE holding companies
  • Post MBAAfter going through a top 10 MBA program, there is a chance to go through the PE recruiting process – however, this is less frequent as often times PE shops will prefer to hire candidates who worked in PE before going to get their MBA

How To Get Into Private Equity: Step

When it comes to tricking people on the Internet, one of the easiest methods is to write about how to get into private equity.

Not all these articles all bad some have a few decent tips and tricks.

But most guides fail to disclose one important point: Unless you have exactly the right background, it will be an uphill battle to break into private equity.

Still, youre probably obsessed with working at KKR or Blackstone, so Ill explain the entire process from beginning to end including why its so ridiculously hard to break in:

Have The Right Management In Place

Mickerts says: “Management is key. Private equity firms always look at the management and will want to meet several times. They like to see a clear split of duties and responsibilities. The CEO normally drives the top line, growing the business whether by products or by country. They want to know there is a vision to develop the company over the next five years and spend the money in a way that supports growth.”

PE firms will also take a close look at the CFO and will want to know they have the numbers ready and understand them. Ferreira says: “That individual may not have the background, education, experience or level of analysis that a private equity firm and their advisers want to see when they’re considering buying the business. Businesses will understand that if they are going to sell part of the company in a year or two, they may need a CFO that has experience going through a transaction.”

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How To Invest In Private Equity And Whether You Should

The vast majority of investing is done within the public marketthe stock market. However, some of the best investment opportunities can be found outside of the public market. The private market includes alternative investments like private equity, private lending, venture capital, and private real estate. Private equity is a growing sector of the investment landscape and activity in private equity has been heating up. However, the private market isn’t as accessible. So, how can everyday investors tap into private equity and capitalize from it?

Private Equity Interview Questions And Answers

How to Get Into Private Equity  Ace Chapman

Private equity interview questions fall into five main categories:

  • Category #1: Fit/Background Why private equity? What do you know about our firm? What are your long-term goals, and how do we fit in? What are your strengths and weaknesses?
  • Category #2: Market/Industry Which industries do you find interesting? Which companies would you invest in? Which markets do mainstream investors view incorrectly? What makes a market appealing or not appealing?
  • Category #3: Technical Questions These are similar to investment banking interview questions, but sometimes theres more critical thinking involved. For example, they might ask you why two companies with similar growth profiles and margins might trade at very different multiples and what it means for their investment profiles.

Youll also get questions on tests of mental horsepower, such as quick IRR math for leveraged buyouts .

Questions will not be exclusively limited to LBOs. Accounting, valuation, DCF models, and even merger models could still come up.

  • Category #4: Deals/Clients Youll have to walk through at least 1-2 deal/client experiences in-depth, explain what you did, and point to the value you added. Did you find a major mistake in due diligence that saved your client money? Did you find a way to position your client that resulted in new buyers or more qualified interest?
  • Category #5: Case Studies and Modeling Tests Modeling tests can range from 30 minutes up to 1-3 hours, or even several days to a week.

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How To Recreate Private Equity In Your Portfolio

What do family offices, sovereign wealth funds and university endowments all have in common? Beyond a huge amount of assets under management and impressive track records, they all have exposure to private equity investments.

This isnt a coincidence, but rather a continuing trend in which institutional investors have the option to invest in asset classes that arent open to retail investors. These asset classes are called private equity.

Previously, access to this asset class meant investing in a private equity fund. These fund structures were opaque, charged high performance fees and, without question, were for accredited investors only. The waiting list for the top funds were long and only reserved for the richest institutions.

But that is all starting to change. A number of new ways to gain access to this lucrative investment class have opened up to retail investors.

Private Equity Is Evolving To Meet The Needs Of Its Assets

PE still makes some business leaders nervous losing control of the business is a significant psychological barrier. And while businesses that seek PE investment for growth can retain control by relinquishing a minority stake concerns about tension between management and investors still exist.

Following the financial crash, the PE sector has rebuilt its reputation away from the perceptions of buccaneering and asset-stripping.

Firstly, operating talent has come to the fore. More firms have put considerable effort into creating teams of operating professionals that can advise and support their investments better. That bank of talent is increasingly being used to attract companies looking for finance, as well as practical hands-on experience to ensure firms can drive the best performance from their investments.

Secondly, many firms have introduced environmental, social and governance factors into their portfolio companies, due diligence and operating plans as they look to create benefits beyond financial returns, which ultimately point to more sustainable growth.

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Liquidity In The Private

The private-equity secondary market refers to the buying and selling of pre-existing investor commitments to private equity and other alternative investment funds. Sellers of private-equity investments sell not only the investments in the fund but also their remaining unfunded commitments to the funds. By its nature, the private-equity asset class is illiquid, intended to be a long-term investment for buy-and-hold investors. For the vast majority of private-equity investments, there is no listed public market however, there is a robust and maturing secondary market available for sellers of private-equity assets.

Increasingly, secondaries are considered a distinct asset class with a cash flow profile that is not correlated with other private-equity investments. As a result, investors are allocating capital to secondary investments to diversify their private-equity programs. Driven by strong demand for private-equity exposure, a significant amount of capital has been committed to secondary investments from investors looking to increase and diversify their private-equity exposure.

Investors seeking access to private equity have been restricted to investments with structural impediments such as long lock-up periods, lack of transparency, unlimited leverage, concentrated holdings of illiquid securities and high investment minimums.

Secondary transactions can be generally split into two basic categories:

  • CVC Capital Partners
  • Private Equity And Crowdfunding

    Should You INVEST In Private Equity?

    Private equity crowdfunding allows companies or entrepreneurs to obtain financing. The investor is offered debt or equity in exchange for partial ownership of the business. Oftentimes, private equity crowdfunding is shortened to the term equity crowdfunding.

    Crowdfunding can be used by companies to raise money, similar to how individuals can raise money for causes via GoFundMe. Examples of online platforms for equity crowdfunding include Wefunder, AngelList, Crowdfunder, SeedInvest, and CircleUp. With private equity crowdfunding, however, entrepreneurs and businesses generally have to give up equity to get the investment.

    The Securities and Exchange Commission has created regulations to allow companies to access capital. There are regulations, such as limits on the aggregate amount of money and on the number of non-accredited investors.

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    Risks Associated With Private Equity Investments

    While investing in private equity funds can be very rewarding, there are areas where these investments can run into trouble.

    • The most well-known of these dangers is for a private equity funds investment to face solvency issues and ultimately declare bankruptcy. While debt can boost profits when a firm is growing, its overuse can have the opposite effect.
    • Private equity-backed businesses are also vulnerable to broad-based economic downturns, such as the financial crisis in 2008 or the COVID-pandemic in 2020. The fact that a company is private does not afford it special protection from a recession.
    • Another risk of PE investing is overpaying for an acquisition. When a PE firm misidentifies a growth opportunity available to the business, it could pay too much for the deal. If these growth opportunities do not materialize, the investment can generate disappointing returns.
    • Secular challenges to a business industry, or an overly aggressive competitor, can negatively affect the returns of a private equity firms investment as well. For example, if a private equity firm invests in a newspaper business at the wrong time, it may lose to online print sources or fall victim to new media innovations.

    Are you trying to put all of this together? A helpful way to appreciate the unique parts of PE investments is to compare them with public stocks, which we do below.

    The Private Equity Sweet Spot

    Clearly, buying to sell cant be an all-purpose strategy for public companies to adopt. It doesnt make sense when an acquired business will benefit from important synergies with the buyers existing portfolio of businesses. It certainly isnt the way for a company to profit from an acquisition whose main appeal is its prospects for long-term organic growth.

    However, as private equity firms have shown, the strategy is ideally suited when, in order to realize a onetime, short- to medium-term value-creation opportunity, buyers must take outright ownership and control. Such an opportunity most often arises when a business hasnt been aggressively managed and so is underperforming. It can also be found with businesses that are undervalued because their potential isnt readily apparent. In those cases, once the changes necessary to achieve the uplift in value have been madeusually over a period of two to six yearsit makes sense for the owner to sell the business and move on to new opportunities.

    How Private Equity Works: A Primer

    To clarify how fundamental the buy-to-sell approach is to private equitys success, its worth reviewing the basics of private equity ownership.

    With large buyouts, private equity funds typically charge investors a fee of about 1.5% to 2% of assets under management, plus, subject to achieving a minimum rate of return for investors, 20% of all fund profits. Fund profits are mostly realized via capital gains on the sale of portfolio businesses.

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    What To Expect In The On

    We published a detailed article about on-cycle private equity recruitment, so Ill link to that rather than repeating everything here.

    To summarize:

    • you start working in August as a first-year IB Analyst.
    • Within months of that, headhunters, such as CPI, Dynamics Search Partners, SG Partners, Henkel, Amity, and Oxbridge, begin contacting you.
    • Then, youll schedule your first meetings with headhunters, and youll need a very specific idea of the PE firms youll pursue .
    • You will have almost no real deal experience by this point, so youll have to spin pitches and early-stage assignments into sounding impressive.

    After that, youll get invited to networking events held by PE firms.

    The mega-funds kick off recruiting on Friday night one week, interview each candidate 4-5 times over the weekend, give each one a 2-hour modeling test, and notify the winners by Sunday/Monday.

    After that process ends, middle-market funds start and finish recruiting they still tend to conduct 4-5 interviews and one speed-based modeling test, but they take place over a longer period, such as a week or several weeks instead of 48 hours.

    The frustrating part about on-cycle recruiting is that headhunters have a ridiculousamount of power, and they use tunnel vision to filter and recommend candidates.

    You can practice discussing your deals and building LBO models, and it certainly helps.

    Private Equity Offers Funds Expertise And Experience

    Fund Structure of Private Equity and Venture Capitalists

    As businesses review their strategies and where they need to make investments for growth in the wake of COVID-19, private equity is becoming a more interesting finance option. Dinesh Anand, global head of private equity and partner at Grant Thornton India, says: “There’s a lot of liquidity. Private equity funds are sitting on huge amounts of dry powder, and they have the money to invest.”

    PE investors are proactively searching for the right businesses either to buy outright in the case of succession and the owner exiting or to transform the growth prospects of those assets through investing in organic and buy and build strategies.

    Many owners are drawn to PE because of the expertise an investment partner can bring as part of the transaction. Anand says: “In a way, the cost is much higher because you’re giving away some equity. But while the cost is higher, so are the expectations. You’re bringing in a partner who is going to provide a high level of operating efficiency and ideally give you access to new talent and/or provide access to certain geographies you don’t yet have.”

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    Successful Pe Investment Follows Rigorous Preparation

    While PE firms have a lot of liquidity and eagerly hunt promising assets among the mid-market, the criteria for investment is high. Carlos Ferreira, national managing partner of private equity at Grant Thornton US, says: “Debt underwriting is still very strict. There’s a general presumption that because investors are sitting on dry powder, they have to put money to work. And, while PE firms are making investments, there are still companies that are difficult to finance. He adds: “Ultimately, investors want to know that they will receive a robust return that is proportional to the risk.

    There are plenty of things a successful mid-market business can do to attract PE interest and increase the chances of following through with the right deal.

    Identify The Area Of Focus

    Within the strategies of private equity discussed above, PE companies occupy various niches, aiming to operate in less competitive markets. These niches are critical for private equity managers to generate outsized profits for their investors.

    Lower-Middle Market

    One of the most common areas of focus is the size of the business that a private equity firm purchases. Private equity managers may operate in the lower-middle market a strategy where they look for companies that might be too small for larger private equity firms and thus find better deals.

    We interviewed a very insightful lower-middle market manager, and he discussed this approach in our podcast here.

    Combining a favorable purchase price, developing these businesses rapidly, and a premium sale price may significantly enhance the returns. Further, a lower-middle market focus serves as excellent private equity investments for small investors.

    Industry Specialization

    Another niche is industry specialization. Increasingly, private equity managers are becoming hyper-focused on specific industries where they have strong expertise and deep industry connections.

    These PE funds might have a unique outlook for how a particular industry is evolving and a vision for how successful businesses should look. Private equity managers can focus on particular niches and outperform, making these investments worth considering.

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    So Why Do They Even Ask Why Private Equity

    Private equity interviewers are not asking this question so they can hire whoever has the best reason. Quite the opposite.

    Theyre asking this question to filter out the candidates who are doing it for the wrong reason. This is an easy way to identify the candidates they dont want.

    Plenty of candidates actually go into private equity with the wrong perception of the job. They think its going to be one thing and it turns out to be another. Next thing you know, they realize they dont want to do the job anymore. This negatively affects the private equity firms productivity and morale, which is bad for business.

    Consider Mike. Mike is an overworked banker wanting to work in PE so he doesnt have to make profiles or decks anymore. He starts on the job excited to run billion-dollar companies. One month in, profiles and lengthy presentations on CIMs is all that Mike has done. What do you think happens to Mikes motivation? He slowly become frustrated with the work and stops taking initiatives. Productivity goes down all because the interviewer didnt detect that the job isnt what he had in mind. Or worse, Mike quits and leaves the team hanging. Associates quitting mid-way through their PE program is very disruptive to the teams. This happens pretty often.

    To avoid these scenarios, private equity interviewers ask you why private equity to make sure you want to do it for the right reason.


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