- Private equity jobs are some of the most desirable in finance.
- Private equity funds invest in large companies that are not yet listed on public markets.
- Senior private equity professionals are paid salaries, bonuses and carried interest – a proportion of the profits made when an investment is sold. Carried interest can be huge.
- Competition for private equity jobs is intense.
What do private equity jobs involve?
Private equity is a vast industry covering a range of investment firms from global companies like Blackstone, KKR, and The Carlyle Group to hundreds of smaller players that specialize by geography or sector such as Vitruvian Partners, Sovereign Capital Partners, or Bridgepoint Group. The biggest firms tend to operate beyond just private equity and invest in asset classes like real estate and private credit as well.
In principle, what private equity firms (also known as General Partners, or GPs) do is very straightforward. They collect money from investors (also known as Limited Partners, or LPs), which include pension funds and wealthy family offices. They then use that money to buy private (not-publicly listed) companies. They “improve” those companies, and then sell them. The profits from the sale are then shared between the firm and the investors, after the investor’s initial contribution is paid back.
In reality, things are more complicated. Private equity firms stand are often accused of “asset stripping.” They buy companies with loans in structures called “leveraged buyouts.” Those loans are often taken out against the collateral of the company they’re acquiring. The acquired company then has to pay them back. Companies with collateral – like nursing homes (which own the buildings) and pubs and supermarkets (which also own their premises) are ideal targets.
A classic recent example of this phenomenon is private Equity firm Clayton Dubilier & Rice (CD&R)’s acquisition of British supermarket chain Morrisons in 2021 in a deal valuing Morrisons at £10bn. As a result of the acquisition, Morrisons’ net debt obligations went from £3.2bn to almost £6bn.
Unfortunately, shortly after CD&R’s acquisition of Morrisons was completed, Russia invaded Ukraine and interest rates rose. As a result, that debt became more expensive to service. Morrisons posted a £1.1bn pretax loss in the year to Oct. 29 2023, according to its parent Market Topco. This included £735m of finance costs, such as interest payments.
Hard times in private equity
It’s not only the Morrisons’ deal. Rising interest rates makes servicing debt increasingly challenging and leveraged buyouts increasingly unviable. Private equity is not what it was.
Bain & Company, a consulting firm, says private equity deals were down 60% in 2023 from the peak in 2021, “as rapidly rising interest rates led to sharp declines in dealmaking, exits [when companies are sold], and fund-raising.”
At the same though, private equity firms still have plenty of money to spend. Bain & Co estimated that they have $1.2 trillion in “dry power,” or money to be spent.
They also have plenty of existing investments they can’t get rid of because no one wants to buy them (at least not at the right price). In 2023, Bain said buyout-backed exits came in at $345bn globally, a 44% decline from 2022. They described the situation as “unprecedented”, in a bad way.
Because they can’t sell their investments, private equity firms are increasingly adopting a different tactic and selling their investments at a discount to other funds, or even back to themselves in a new fund, in the so-called “secondary” market.
Why do people want to work in private equity?
Even so, private equity jobs still are highly desirable. This is because, unlike investment bankers, people in private equity are the buyers. They are investing in companies rather than just advising on deals, and this is more exciting. Job security in private equity is also typically much higher than in a bank, and as you become more senior you are paid carried interest, or a proportion of profits above a specified level, which can be extremely lucrative [if the exits happen].
How do you get a job in private equity?
Historically, most private equity firms liked to recruit junior talent from investment banks. This is because banking juniors have completed a two-year training program and have a good grounding in the fundamental aspects of financial modelling, pricing companies, and Mergers & Acquisitions (M&A). In recent years, however, many private equity firms have started to hire and train recent graduates of their own. For example, big funds like Blackstone now run their own training programs. But getting a place can be hard – Blackstone has around 400 applicants for each of its 160 or so open graduate opportunities.
For this reason, a first job in an investment bank is still the best launchpad for a private equity career. “Graduates wanting a career in private equity must get into an investment bank and get into the right team,” says McManus. Working in M&A or leveraged finance secures the best chance of getting on the shortlist for a job in private equity.
Another way into private equity is by training in transactions services with a Big Four firm or by doing private equity commercial due diligence in a strategy consultancy.
What are the jobs you do private equity?
Working in private equity is all about analyzing good business investments, and then beating the competition to acquiring an asset. This might be through direct negotiation with a company that a PE firm has identified as a good target to purchase, or through a formal auction process run by an investment bank that’s selling a business to a group of competing buyers.
There are similarities to working in private equity and to working in M&A (and this is why junior M&A bankers often move into private equity). However, as we noted above, when you’re working in the M&A division of a bank, you’ll just be advising on the deal. As the advisor, you’ll provide advice on deals and financing. As the private equity professional, you’ll be the one instructing the bank and the person actually doing the deal.
Both jobs can involve an intense workload. But when a deal is live, it’s the M&A bankers that pick up most of the slack. “If anyone will be working all weekend, it will be the M&A advisor, not the private equity person,” says Gail McManus, founder of Private Equity Recruitment. “You’re calling the shots, and the advisers are doing the delivery.”
Private equity firms have job titles that are similar to those in banks. At the bottom of their hierarchy are the analysts and associates, and this is where you’ll usually start. Analysts and associates own the models. That means they’ll be able to see the cashflows and analyze what needs to be done to make a business perform better. Owning the models provides essential grounding for taking more senior roles in private equity. You’ll soon be able to identify what makes a good target firm for your private equity firm to invest in.
As you become more senior, you will have more responsibility for running deals and working with senior executives at the firms you’ve invested in. “If you work for a big global firm which work on the multibillion complex leveraged buyouts, you’ll look after a tiny part of a big deal. But if you’re working for a mid-market firm with a £1bn fund, then you’ll be more involved,” McManus says.
Some big U.S. firms expect associates to complete an MBA after a couple of years, but broadly speaking, if you’re a good fit then you can forge a very successful career at a single private equity firm.
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 want to make it to managing director, it will take a minimum of 10 to 15 years.
Fund investment jobs and venture capital jobs
As well as working as a deal professional in a private equity firm, you can also work for an LP as a fund investor. Here you’ll work for a pension fund or the family office of a wealthy individual and decide where to invest. These roles are a lot less competitive and more suited to people with analytical minds who aren’t necessarily extroverts or highly competitive. LPs are increasingly investing alongside the funds they invest in on big deals. For example, in February 2021, Bill Gates’ family investment vehicle, Cascade Investment, teamed up with private equity firms and pension funds to acquire Signature Aviation, a UK aviation services company.
You could also consider a career in Venture Capital (VC), a once growing and now struggling area of the market. Unlike big LBO houses which seek ownership of already mature large companies, VC funds take smaller stakes in companies and help them reach their “full” potential. VCs are big investors in technology, where start-ups are looking to disrupt established players across industry groups. They also invest in companies pursuing zero carbon emissions as environment – so social and governance factors play a prominent role in investment decisions. To enter a venture capital fund, you’ll still need a solid grounding at an investment bank, but more likely to have worked in a specialist sector team such as technology, media and telecommunications.
Which skills will you need for a career in private equity?
Private equity firms recruit from investment banks, so candidates will already have a basic grounding in finance, reading balance sheets, and understanding how companies are valued. Strong analytical skills are essential. But private equity firms are also looking for ultimate all-rounders: people with insightful thinking and the ability to build relationships.
“Private equity professionals need to be confident and persuasive but also hard-edged when it comes to negotiating. They sell with their eyes and mouths and buy with their brains,” says McManus. Private equity funds are looking for “Action Man or Action Woman,” says McManus. You need to make things happen, to be “ultra-competitive, not let things stand in your way.” You need relationship skills as well. “It’s all about winning the deal,” McManus says.
Alongside this, you’ll need to be interested in how businesses work, rather than simply sitting behind a desk and looking at numbers, although there is an element of that as well.
When assessing candidates for a career in private equity, McManus asks the coffee shop question. “If you’re thinking of buying a coffee shop, what’s the first thing you’d do?” If your answer is you’d go and visit your local shop to see if the toilets are clean, how many people there are, how many staff are on a shift and whether they look happy, then a career in private equity is probably for you. If your instinct is to go and find an analyst report on the subject, then you’re probably better off working at an investment bank.
If you want to work in private equity, it’s important to speak up and have an opinion on a particular deal. Being a private equity professional means being able to argue for or against a particular investment opportunity or sector, so a passion for understanding the inner workings of business is essential.
Education and qualifications needed for private equity
What do private equity professionals study? The same as investment bankers! This is because private equity firms typically hire from investment banks. Blackstone and Apollo for example hire a lot of finance and business studies graduates, as does European firm CVC. All firms hire humanities students too, though.
Historically, the golden ticket into a private equity role was an MBA. This path was called the 2+2; 2 years in investment banking (the length of an analyst program), plus a 2-year MBA. Although MBAs are still popular, they’re less of the big deal they were in the past, as private equity firms are increasingly training their own juniors internally. MBAs hired by private equity firms have generally come from three places: Harvard, Stanford, and Wharton.
Other qualifications for PE jobs might include a masters in finance (also a popular choice for prospective investment bankers), a Chartered Alternative Investment Analyst (CAIA), or if you’re in the UK, Oxford University’s private markets investments programme, which lasts six weeks. CFA Institute, best known for its eponymous qualification, has also recently launched a certificate in Private Markets and Alternative Investments.
What’s the pay like in private equity?
When it comes to salaries and bonuses, private equity firms usually pay slightly below or on a par with investment banks – and like banks, salaries and bonuses vary significantly depending on the firm in question. The real money is not in the annual compensation, but in carried interest, which usually goes to professionals from around principal upwards (although some firms pay carried interest earlier).
Also known as “carry”, carried interest is derived from the profits that are made on the LP’s original investment and is typically 20% of the returns (once a predetermined hurdle rate has been met). For example, if an LP invests $1bn, the private equity firm’s carry might be $200m, which it then distributes to the deal team. In this way, working in private equity can be very, very lucrative (especially as carried interest is typically taxed as a capital gain). But carry is only paid when deals are exited, so you’ll typically need to wait around five years.
The figures below are taken from our 2024 salary and bonus report. As private equity uses a different ranking system to investment banking, we’ve chosen to show the data by age bracket. It’s worth noting that a majority of private equity hiring is done either of MBA graduates or established investment bankers, meaning that those few graduates (in the 20-25 bracket) who join the firm are much more likely to be the cream of their crop, and better compensated for it.
It’s also worth noting that our figures do not reflect carried interest, which varies significantly between firms based on their size, measured in Assets Under Management (AUM).
With additional material from Zeno Toulon.
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