A career in private equity (PE) is one of the most interesting opportunities for those who already possess a passion for finance and who enjoy growing and building up a business in the long-term. Not only is this an extremely dynamic position, it can also be extremely rewarding both in terms of compensation as well as job satisfaction, which is perhaps why private equity is attractive to so many professionals.
So, what does a private equity specialist do? How can you progress through the ranks over time and what perks can you expect? In this article, we will take a deep dive into what you can expect from a private equity career path.
Private equity (PE) is a type of alternative investments whereby PE firms aim to create value in businesses by investing directly in private companies, or buying out publicly listed companies to delist them from the public market.
PE firm tend to take a longer view in investment horizon, aiming to create value in private businesses through operational improvements, financing growth and other changes. Through financial leverage, active management and longer time horizons, these should drive returns for PE firms. Private equity firms (General Partner) also make money by charging management and performance fees to their investors (Limited Partners).
One of the main responsibilities of a private equity firm (General Partner, GP) is to raise capital. This is normally accomplished by working with third-party investors (Limited Partners, LP). With the capital that is raised, a private equity firm will then typically buy another company in order to improve its performance, restructure or add value before selling at a profit.
Private equity firms therefore work to identify potentially lucrative opportunities, secure investments and manage companies to meet objectives. Once investment in a project is obtained, the private equity firm will retain a small percentage of the funds. The remainder is then devoted towards the venture in question (such as restructuring a company or asset before reselling it to enjoy an appreciable return-on-investment).
So, what daily tasks will a private equity specialist perform? One primary duty involves analyzing investment opportunities in order to decide if they should be recommended to a Limited Partner. This means that a significant portion of the day may be spent on tasks such as reviewing balance sheets, collating historical data, carrying out market research and valuation.
Communication and collaboration are also important parts of the job; particularly for those who have risen past entry-level positions. Additional responsibilities may include managing investments, post-investment monitoring, working with other team members, and presenting new opportunities to external investors.
There can often be multiple projects underway at any point, so it’s important that successful individuals in the industry are able to switch focus when needed. It’s also important to have the ability to assess each venture from various perspectives so that objective decisions can be made. This means being able to see things from the point of view of their firm and their investors, as well as the company they’re looking to invest in including its staff and customers.
Private equity is often involved in long-term ventures as opposed to one-off investment opportunities. This is why establishing transparent relationships with investors and other stakeholders is another important part of a career in private equity.
Private equity is a popular sector, and a common target exit option for investment bankers. One important driving factor involves highly competitive compensation packages, typically with relatively better work life balance than investment banking. That said, working 80 hours a week is not unusual during busy seasons or if you’re in the top PE firms.
The private equity sector has seen significant growth in recent years which has led to a strong employment outlook, as firms are always seeking to hire qualified and talented professionals. There several other reasons why private equity is considered to represent an attractive opportunity including:
While there are a number of great reasons why you might want to pursue a career in private equity, these very same factors require a special type of individual. The majority of those who are successful within the private equity sector are passionate about finance, highly driven to succeed and possess the ability to “think outside of the box” when evaluating new investment opportunities. Individuals should also be somewhat patient, as rising through the ranks can represent a challenging process.
The fluid nature of this role means that the exact career path and opportunities for progression will usually vary between firms (and depending upon the requirements of each). However, there are a number of typical milestones in the industry. Let’s examine each stage and what responsibilities will be expected.
PE analyst typically have 2-4 working experience, recruited from other firms like investment banks, accounting, consulting firms etc, depending on specialization.
Entry-level employees tend to perform a fair amount of “grunt” work such as crunching numbers, generating potential leads and data entry.
At this stage, the majority of junior analysts will focus upon specific portions of a deal as opposed to directly overseeing the entire process.
Private equity associates are slightly higher up in the food chain. Associates are often tasked with reviewing the work of junior analysts in order to check for potential errors. They will also communicate with other in-house teams (such as legal and accounting) in order to determine the viability of a specific venture.
Assuming that the investment is tentatively approved, associates may become involved with more complex modelling responsibilities. Once again, the exact duties will depend upon the size and speciality of the firm. Most associates are generally younger than 30 years of age, and they will typically remain in this position for an additional two to three years before looking to move up.
Senior associates enjoy a more well-rounded role within the firm. They are responsible for various tasks such as developing new investment opportunities, communicating with third-party partners, performing financial valuations, and attending board meetings.
Senior associates will also work closely with partners and in many cases, they are rewarded with substantial commissions (assuming that a deal is approved). Once again, many individuals will remain at this position for between two and three years. Some may choose to remain within the firm while others could instead consider potential exit opportunities.
Vice presidents are generally concerned with how the deals themselves are managed. They are the public face of the private equity firm. A private equity VP will develop working relationships with limited partners, and they may also travel frequently in order to secure new investments and meet with clients.
Vice presidents will also often act as mentors to associates and senior associates. Up to four years of experience may be required before a vice president is able to ascend yet further. Note that many firms will have more than one active vice president at any given time.
Assuming that a deal is identified and approved, private equity directors will often be directly involved with any subsequent client negotiations. This is one of the most powerful positions, as directors will often have an influence upon the investment strategy of the firm.
Individuals at this level will typically be heavily involved with the management of larger portfolios as well as ensuring a higher return-on-investment. As a senior role within the firm, some directors may remain at this position for the rest of their careers. However, others may wish to move on, with around four years the typical length of time needed before progressing to start up their own company.
In the majority of cases, this is the most senior position that can be obtained at a private equity firm. Many managing partners and directors are also founders of the company itself. They are involved with nearly every operational aspect of the firm and while managing directors may not oversee entry-level employees, they will still be ultimately held accountable in the event that a mistake was made in the pipeline.
However, this level of administrative oversight is also rewarded with extremely generous salaries and compensation packages. Decades of experience are normally required, and most managing partners will remain at this position for the remainder of their career.
The salaries associated with the positions outlined above will vary between organizations and yet, we can still draw some general conclusions based on recent industry statistics.
As with many careers in the financial sector, those working in private equity will typically receive a base salary and a performance related bonus on top. Another type of compensation that some private equity professionals receive is known as carried interest. This is a type of bonus that is paid once the company invested in is sold or floated, which is usually a few years after the initial deal was made.
Compensation can vary quite significantly between different locations, between firms of different sizes, and between the type of private equity fund that an individual or a firm is involved in managing. For example, some top performing mega funds will pay significantly more than smaller funds.
Some average salary ranges for private equity roles in the US and the UK are shown below.
| Position | Typical Time in Role | Base Salary | Bonus | Total Compensation |
|---|---|---|---|---|
| Analyst | 2 – 3 Years | $90k – $120k | $10k – $30k | $100k – $150k |
| Associate | 2 – 3 Years | $100k – $150k | $50k – $150k | $150k – $300k |
| Senior Associate | 2 – 3 Years | $150k – $200k | $100k – $200k | $250k – $400k |
| Vice President | 3 – 4 Years | $200k – $350k | $200k – $500k | $400k – $850k |
| Director | 3 – 4 Years | $250k – $400k | $250k – $600k | $500k – $1m |
| Partner / Managing Director | n/a | $400k – $2m | $400k – $2m+ | $800k – $4m+ |
| Position | Typical Time in Role | Base Salary | Bonus | Total Compensation |
|---|---|---|---|---|
| Analyst | 2 – 3 Years | £60k – £90k | £20k – £40k | £80k – £120k |
| Associate | 2 – 3 Years | £75k – £100k | £75k – £100k | £150k – £200k |
| Senior Associate | 2 – 3 Years | £90k – £120k | £90k – £200k | £180k – £320k |
| Vice President | 3 – 4 Years | £120k – £180k | £100k – £200k | £220k – £380k |
| Director | 3 – 4 Years | £150k – £200k | £200k – £600k | £350k – £800k |
| Partner / Managing Director | n/a | £200k – £500k | £200k – £2m+ | £400k – £2.5m+ |
A major part of the compensation package for private equity professionals, particularly at Vice President level and up, is the “carry”, or carried interest. This is a share of the return on the investment that is paid to the firm following the sale of the company that was bought at the beginning of the project. These payments are usually calculated in proportion to the level of investment contributed by the individual. For top performing, large scale investments, the carry can represent millions of dollars or pounds for high earners.
If you’re curious about a career in private equity, then you might be wondering where to begin. A bachelor’s degree from a recognized university is a minimum, although some top-tier firms may prefer a master’s degree.
It’s also worth mentioning that some companies prefer to hire individuals who possess a fair amount of prior finance experience, either from investment banking, consulting, ‘Big 4’ accounting or analysts from working in the industry itself. Those who begin their careers as a graduate can often study to obtain an MBA while working on a full-time basis. Some firms will even provide training programmes which can expedite the learning process. There may be occasions when private equity internships are available, although this is a rare exception as opposed to the rule.
The relatively complex nature of private equity signifies that a fair amount of training is required. While a university education is critical, these skills can often be complemented and enhanced with additional certifications.
More than 170,000 professionals from around the world currently hold a CFA charter. Not only is this perhaps the most recognised financial qualification, but it illustrates that candidates take the world of finance seriously. Obtaining a CFA charter is associated with higher pay in the finance sector and the program includes a range of topics that are relevant to a career in private equity.
Other benefits of becoming a CFA charterholder include the fact that it costs less than an MBA, and that it is often preferred by larger equity firms which are extremely competitive in nature.
Many reputable equity firms will proactively search for prospective candidates by visiting the most well-known business schools. Possessing an MBA is therefore an excellent way to enjoy an edge over the masses.
As touched upon earlier, most mid- to upper-level private equity positions will require an MBA. This certification helps to cover the managerial aspects of an equity specialist and it teaches a host of powerful techniques to properly supervise subordinates.
An ESG (environmental, social and governance) certification is becoming increasingly important within the world of private equity. Not only is this level of transparency often preferred by clients, but it helps to ensure that the PE firm remains in compliance with modern regulations.
It is therefore no surprise that ESG qualifications are increasingly popular, as firms increasingly look to recruit ESG specialists. As companies continue to place a greater importance upon sustainable investment practices, and subsequently this becomes more important within the world of private equity, a qualification such as the CFA Institute’s ESG Investing certificate or Certified ESG Analyst (CESGA) are likely become even more desirable.
A CAIA (Chartered Alternative Investment Analyst) certification is yet another title to consider. This is one of the few alternative investment specialization to go for in finance. For CFA charterholders, there’s even an option to leverage on the CAIA stackable program to get a CAIA Level 1 exemption.
Delving deep into alternative investments is highly relevant to a private equity career and can further indicate your interest and expertise in this field. Obtaining CAIA certification also provides members with access to global chapters; enabling individuals to tap into a much broader client base.
There has been some impressive growth in the private equity sector over recent years, and the industry is expected to remain buoyant over the coming decade. Starting a career in private equity therefore should provide good opportunities for the right individuals.
Similar to many finance sectors, one pronounced trend involves the use of digital technology to access the global marketplace and to remove previous geographic barriers. Private equity has also been the key reason why the numbers of mergers and acquisitions have risen substantially in recent times. Some other key points regarding the outlook for private equity include:
Simply stated, the growth of this sector should provide those who possess the appropriate qualifications, skills and experience with a host of unique opportunities.
Despite the attractive compensation package and interesting job scope, there are still a handful of exit opportunities to explore if private equity doesn’t suit.
Those who wish to broaden their horizons or simply desire a change of pace will often migrate to similar sectors such as hedge funds or portfolio management. Additional exit options include:
The possibilities will also depend upon the unique interests of the professional, so there is a great deal of flexibility for those who wish to change their financial career paths.
As many private equity firms specialize in certain sectors or asset classes, the experience gained can help with moving into another role in that sector. Private equity professionals also sometimes move into areas like hedge funds or corporate development, where their skills can bring some added value to the table.
Embracing a role within the private equity sector will provide you with an incredible opportunity for professional growth. Due to the dynamic nature of this sector, it could also be an excellent choice for those who enjoy challenges in business turnarounds and restructurings.
Private equity specialists are well compensated, and it is often possible to climb the corporate ladder rather quickly if you possess the motivation. However, there are still some aspects that it’s important to be aware of, including:
Is a career in private equity the right choice for you? If you’re looking for a dynamic and potentially highly rewarding sector that involves a range of aspects from identifying opportunities, financial valuation and executing deals together, through to getting involved with the operational aspects of businesses and even creating jobs, then private equity is certainly worth considering. For those with a passion for finance, who enjoy a challenge, and have a keen eye for an opportunity, this sector could indeed represent a sustainable finance career path.
We hope the guide above shed some light on a private equity career. Do you think this career path suits you? Let us know in the comments below!
Meanwhile, here are related articles which you may find interesting:
In general, the right type of study music does help improve study focus. While there…
Nearly every student is accused at some point of idling about listening to music instead…
productive habits
Are you considering CAIA certification? We often get asked how difficult the CAIA exams actually…
With a reputation for offering some of the best salaries in the financial sector, a…
The recent pandemic has brought ESG (environmental, social and governance) issues to the forefront of…
View Comments
Thanks for the post - very helpful!
In my opinion, the path to a career in private equity is becoming ever more challenging. With investment banks, a primary feeder for PE roles, downsizing, there’s a noticeable decline in the pool of candidates with the ideal background. This trend implies a narrower gateway into PE, where experience in investment banking is often a prerequisite.