How to Become a Private Equity Associate

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How to Become a Private Equity Associate

Many investment banking analysts are considering a career in private equity (PE) as the next step in their financial careers. Because private equity businesses are smaller than investment banks, there are fewer jobs and more competition for them. Private equity businesses, on the other hand, offer various benefits over other forms of investment organizations, such as unconventional investing skills.

Private equity companies recruit associates and normally need at least two years of experience as an investment banking analyst. Private equity associates, like investment bankers, may work extraordinarily long hours, particularly during transaction closings.

Key Takeaways

  • Private equity (PE) investing entails purchasing private firms, upgrading their management and business model, and then profitably selling the investment.
  • Private equity associates collaborate closely with client businesses or prospects to do due diligence as well as monitor the financial performance of the companies in their portfolio.
  • Associates often have a data-driven background, are well-versed in financial analytics, and have relevant sector job expertise.
  • Because effective private equity associates often network and fundraise, they also have great soft skills in communication, negotiating, and public speaking.
  • Even with little to no direct experience at a private equity company, associates often receive a six-figure salary in their first year.

Private Equity

A private equity firm is an investment management organization that funds firms that are not publicly traded. Private equity firms are funded by high-net-worth individuals, institutional investors, or venture capital firms with the prospect of capital growth. Pension funds, retirement funds, and insurance companies often invest in private equity firms, and the private equity company earns money through client fees.

When opposed to public enterprises, private equity firms often face less regulatory limitations and investing standards. This includes the Securities and Exchange Commission’s reporting and operational obligations.

Private equity companies find and investigate prospective entities for investment in the same way that any business is valued or analyzed. The firm examines the business’s market presence, management, current financial performance, areas of growth, and potential departure possibilities. Private equity businesses make capital investments by either purchasing a company completely or collaborating with its management.

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After acquiring a private corporation, private equity companies aim to boost the company’s value by introducing new processes, technologies, or strategies to improve the company’s efficiency and profitability. Private equity firms are often not engaged in the day-to-day operations of their portfolio businesses, however their degree of engagement may be proportional to the amount of their company’s interest in the company.

A private equity firm’s ultimate purpose is to profitably sell or leave their investment. The firm’s departure might take years after the initial investment. The exit may occur if the portfolio firm is bought by another business or if the portfolio company goes public (IPO).

TPG Capital, Warburg Pincus, Carlyle Group, Kohlberg Kravis Roberts, and Blackstone Group are examples of notable private equity companies.

Job Description

Private equity businesses are often significantly smaller than investment banks and have a much flatter structure as a result. Entry-level private equity associates often work closely with firm leaders and partners throughout the course of a transaction.

As a private equity associate, you may be responsible for the following tasks:

  • Analytical modeling: The associate’s major duty is to give all analytics necessary for the principals and partners to make an educated judgment about a transaction. Preparing preliminary due diligence reports and calculating growth estimates are common duties.
  • Portfolio company monitoring: Associates are often allocated portfolio firms to oversee and must keep financial data up to date.
  • Examining CIMs: A confidential information memorandum (CIM) is a document used by investment banks to offer information about fresh investment possibilities. Associates receive CIMs, assess them for prospective prospects that match inside the firm’s structure, and present the leadership team with a brief one-page summary.
  • When new funds are founded, associates help with early fundraising while senior executives manage the majority of the relationship and client contact.

Most private equity associates work for two to three years before being considered for a senior associate post. Future positions in a private equity company might include Vice President/Principal, followed by Director/Partner.

Education and Training

Candidates must have a bachelor’s degree in an analytical field such as finance, accounting, statistics, mathematics, or economics. Technical capacity to assess financial performance and determine the worth of a private firm is required for private equity fund management. As a result, in addition to analytical abilities, applicants are often familiar with database systems such as Bloomberg and modeling programs like as Excel or Visual Basic. Private equity professionals often understand contract law since their jobs may require arranging sophisticated investment arrangements or doing due diligence at closure.

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Though not needed, applicants who are proficient in numerous languages may advantage if their business will pursue transactions from non-native speaking organizations. It is also beneficial to have specialized industry expertise of a certain topic or sector. This might include company kinds (retail, energy, or technology) or geographic markets (online, local, or multinational).

Unless the student has prior substantial private equity internships or job experience, private equity companies do not normally employ directly out of college or business school. Firms often prefer applicants with extensive experience in investment banking, corporate consulting, strategic consulting, or corporate restructuring.

Candidates for private equity businesses benefit from a variety of soft talents. Private equity company employees are frequently adept with networking, negotiating, and communication since dealing with bankers, investors, and other market players is often crucial to their employment. Candidates must be comfortable speaking in public and presenting to internal management or external portfolio firms.

Salary and Compensation

The average yearly salary for a Private Equity Associate with less than three years of experience in 2022 was about $99,000. The average national wage ranged from $54,000 to $180,000.

Compensation

Those who are successful in private equity will be handsomely rewarded. In 2022, the typical total salary range for a Vice President in Private Equity was between $90,000 and $439,000, with the average total compensation being little less than $194,000.

Total remuneration varies greatly since, in addition to a wage, associates earn a bonus based on concluded agreements and revenue produced from deals. The bonus % is frequently set for entry-level associate jobs, but upper-level managers may be awarded with bigger incentives with variable percentages dependent on performance.

Employees of private equity firms may also be entitled to earn parts of carried interest (or “carry”).Carry is the private equity firm’s portion of earnings that flow from a portfolio business to the firm. Employee carry payment distributions are often linked to the business’s financial success, and various employee levels within a corporation generally get varied quantities of carried interest payments.

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How Much Does a Private Equity Associate Make?

According to 2022 salary statistics, the typical total income for a Private Equity Associate with less than three years of experience in the United States was slightly over $99,000.

What Are the Responsibilities of a Private Equity Associate?

A private equity associate may be engaged in all aspects of acquiring, managing, and exiting an investment position. They may be engaged in the due diligence process by examining the market, operations, and long-term strategic perspective of a potential firm. They may keep track of a portfolio company’s continuous financial performance. They may help with legal papers for the purchase or sale of an investment stake.

How Many Hours Do Private Equity Associates Work?

Employees at smaller and mid-sized private equity companies often work 60 to 70 hours per week, with perhaps more hours as acquisitions reach closure.

What Does Working in Private Equity Mean?

Working in private equity entails funding non-public firms and striving to nurture their performance in order to produce investment growth for your organization. It comprises finding private firms to invest in, monitoring your investments in such companies, and strategically leaving your investment position to gain on investment growth.

The Bottom Line

Private equity associates are involved in transactions from start to finish. Entrylevel associates are essential members of the team and must possess exceptional analytical and leadership abilities. It is tough to get one of these sought-after jobs. Individuals who successfully create a career in private equity, on the other hand, have enormous financial potential.

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