Contrary to what one might think, recruitment for private equity investment professionals often begins in the first year of their undergraduate courses on investment banking, consulting, or other domains. This requires the candidates to be ready for an interview fairly early in their academic journeys if they wish to land plum jobs. They need to approach headhunters, as against post-MBA candidates who can depend more on the career centers of their graduate schools.
Get this part right, and candidates can be assured of a great start to a career in private equity. The move from banking to private equity is a prestigious one, with firms making a beeline for top candidates. Hiring for the summer cycle of a particular year is often complete by July-August of the previous year! It is also true that recruitment continues at other firms all the year-round, so there will be more chances.
Interviews at US private equity firms can take from a few days to a few weeks, depending on various factors. The duration of an interview can vary, though it tends to be much shorter than in investment banking.
Aspiring private equity investment professionals can expect behavioral and technical interviews, as seen in investment banking too. In addition, they could be tested for:
- Investment acumen: broad case studies similar to consulting, or detailed investing exercises requiring perusal of filings and preparing an investment memo
- Leveraged buyout (LBO)-specific technical competence: financial modeling test or one stretching over a few hours.
As with most job offers, firms may not allow candidates much time between making an offer and accepting it. Candidates must resist the temptation to kickstart a career in private equity by jumping at the first offers they get and must do the right due-diligence to avoid any future disappointments.
Here are the top questions to ask:
- How many product lines or funds does the firm operate?
Hedge funds and debt investment vehicles are among the new areas US private equity firms are diversifying into, with a sound investment strategy and approach required for each area. The answer will give an idea of the variety of work available and the sustainability of the model i.e. whether or not the firm is spread out too thin.
- What investment strategy does the firm follow?
From assets close to bankruptcy or underperforming to high-growth, glamorous options, firms claim to operate across the range. Strategy determines the kind of work, such as cost-cutting and heavy restructuring in distressed funds or developing the topline in growing funds.
- How many funds have the firm raised?
Potential and entrepreneurial approaches can make first-time funds attractive to aspiring private equity investment professionals. However, it is equally true that external hires are more common than internal promotions in a growing firm.
- How does actual fundraising compare with targets?
In most cases, a fund unable to meet its fundraising target is a red flag, down on favor with its investors and thus not an attractive employer. Funds often stop fundraising once they hit their targets, to avoid overstretching their teams.
- How are staffing decisions made?
Dedicated teams for different product lines, industries, or geographies suggest a chance to specialize, while otherwise, the candidate could become a generalist. There are upsides to both, but it helps to be in the know and make an informed choice.
- What is the size of the operations team?
Large operations teams could imply less involvement for new hires in the operational and commercial parts of portfolio management or due diligence. If there is no dedicated team for operations, new recruits might have more chances.
- When does carried interest accrue?
Carried interest is the performance fee paid to general partners when investments made by them generate internal rates of return (IRR) beyond a specific threshold. It is good to know when a candidate would be entitled to carried interest, and also how it is computed i.e. at fund level or on a deal-by-deal basis.
- What is the career path?
Glass ceilings exist at US private equity firms, and candidates may often be part of fixed-term Associate programs or be encouraged to move on if the firm does not expect to have additional positions for partners or senior managers.
They certainly can. Certifications help with a great start to a career in private equity by equipping candidates with the latest skills and know-how in the field and preparing them for growth and for positions of high responsibility.
Here are some of the best certifications in private equity:
- Chartered Private Equity Professional (CPEP™): Offered by the United States Private Equity Council (USPEC), CPEP™ prepares a candidate with the right appeal and knowledge levels to match what any leading private equity or venture capital firm would seek. The program is based on the rigorous USPEC IFIS™ body of knowledge, and it prepares candidates thoroughly with the right skills, readying them for excellent on-the-job performance.
- Certified Private Equity Professional (CPEP): Suitable for entry-level candidates or those already working in the field, this certification covers private equity structures, details of LBOs, and how to measure returns. It is offered by the Investment Certification Institute.
- Private Equity and Venture Capital: This course, coming from Bocconi, looks at venture capital and private equity businesses. It helps candidates understand the process of creating a firm and how it could get support from private equity or venture capital.
- Ultimate Private Equity Modeling Course: From Udemy, this gives a detailed look at the private equity industry. It teaches candidates how to build a private equity model hands-on, along with techniques of valuation and corporate finance and details of the intellectual framework of private equity deals.