Career paths in private equity

Career paths in private equity are comparatively straightforward, but what complicates matters is the point at which you enter the industry.

Say you work for a couple of years as an analyst in investment banking. You will be brought into a private equity firm as an associate. This role is all about the number crunching – ensuring that you’re managing the companies in a private equity firms' portfolio in a way that extracts maximum value, assessing the financials of possible investment targets and looking at the numbers behind a potential ‘exit’ from an investment. This is a role that you stay in for two to three years before being promoted to associate.

If you come in after an MBA, you usually start out as a senior associate. A lot of MBAs going into private equity will have already spent a couple of years in investment banking anyway.

Everyone is part of the deal process though. One of the key components of the recruitment process in private equity is the ‘fit’ test during the job interview. Fundamentally, people spend a lot of time together in comparatively small teams. This means everyone has a view.

'One of the key components of the recruitment process in private equity is the ‘fit’ test during the job interview'

“You will be interacting with senior members of the company on a regular basis and one of the reasons we hire analysts is for the fresh perspective they can bring on deals and projects,” says Guy Hands, founder and chairman of private equity firm Terra Firma. “If you have a great idea that you feel would contribute we want to hear it!”

Private equity is often viewed as a destination, rather than place to open up new career opportunities. Part of the reason for this is that you need to remain committed until you start to see ‘carried interest’ and that’s where the big money is.

“It is generally better hours than investment banking, except during the crunch time on a deal, and a much more all-encompassing and rewarding job,” says a former investment banker who’s now a director in a private equity firm. “You are not selling services or staring at a spreadsheet all the time and it’s generally very interesting.  It is a long-term commitment - you won't see serious money for the first 10 years as a junior.”

'You are not selling services or staring at a spreadsheet all the time and it’s generally very interesting'

Associates typically have five years’ industry experience and you’ll spend another couple of years’ as a senior associate before making it to director or principal. If you have ambitions to make it to managing director or partner, bear in mind that this will take a minimum of 10-15 years. These are the people who will originate deals.

General partners are industry veterans and usually have at least 15 years industry experience under their belts.

Exit options still exist. It’s not unheard of for private equity professionals to make the move back to investment banking, but this is usually done early in a PE career if a former banker decides the buy-side is not for them, or economic conditions are really bad for private equity firms.

More common is for private equity executives to be asked to join the management team of a portfolio company when an investment is exited. Others will join in a business development role, advising a former portfolio company on their next strategic move.

Or, if you find yourself stuck at partner level unable to make the move up to managing partner, it’s not uncommon for them to leave and set up on their own.

“I have a lot of friends hitting their 10-year anniversary in private equity, and they seem perfectly happy where they are,” says the private equity director.