Many investment banking analysts look towards private equity (PE) as the next step in their finance careers. (See: What Is Private Equity?) Private equity firms are smaller than investment banks, so there are fewer jobs and competition for these positions can be intense. Private equity firms hire their entry-level staff as associates and typically expect at least two years of experience as an investment banking analyst. Similar to investment banks, associates at private equity firms can work extremely long hours, especially during deal closings.
Private equity firms attract capital from high net worth individuals as well as institutional investors like foundations, endowments, and pension funds. They invest the capital in privately held companies by either buying companies outright or by investing capital and partnering with the company’s management. (See: What's the difference between publicly and privately-held companies?) Private equity firms make money from the fees they charge the investors and from the carried interest from investments. Notable private equity firms include TPG Capital, Warburg Pincus, Carlyle Group, Kohlberg Kravis Roberts, Blackstone Group, and Apollo Management. Most firms are small to mid-sized investment organizations that can range from hundreds of employees to a two-person shop.
Private equity firms are generally much smaller than investment banks and have a correspondingly flatter hierarchy. Entry-level private equity associates can work closely with firm principals and partners on every step of a deal. Associates can feel a great sense of satisfaction in seeing a deal through from its beginning to completion.
Duties as a private equity associate can include the following:
- Analytical modeling: The primary function of the associate is to provide all analytics required for the principals and partners to make an informed decision about a deal. Common tasks include preparing preliminary due diligence reports and modeling with growth forecasts.
- Portfolio company monitoring: Associates are usually assigned portfolio companies to monitor and must maintain up-to-date financials.
- Reviewing CIMs: CIMs or confidential information memorandum are documents investment banks use to provide data about new investment opportunities. Associates receive the CIMs, screen them for potential opportunities that fit within the firm's framework, and provide a simple one-page summary for the senior team.
- Fundraising: When new funds are being formed, associates assist with preliminary fundraising while senior executives handle most of the relationship and client interface.
Most private equity associates stay in their positions for 2-3 years before being considered for a senior associate. A successful career path at a private equity firm may look like the following:
Senior Associate (2-3 years)-->Vice-President/Principal (2-4 years)-->Director/Partner
Education and Training
Candidates should have a bachelor’s degree in a major like finance, accounting, statistics, mathematics, or economics. Private equity firms do not usually hire straight out of college or business school unless the student has previous significant private equity internships or work experience. The most important qualification to become a private equity analyst is 2-3 years prior experience as an investment banking analyst. Some firms also hire former management consultants. (See: Career Advice: Management Consulting Vs. Private Equity.) Getting an interview takes both a strong network in private equity and knowing the right headhunters. Most private equity firms use headhunters who serve as gatekeepers to these jobs.
Salary and Compensation
Total compensation varies widely because, on top of a salary, associates receive a bonus which reflects closed deals and income generated from deals. For entry-level associate positions, the bonus percentage is often a fixed percentage and less variable than it is for the upper-level managers.
- First year associate: $50,000-$250,000 with an average of $125,000. An average first-year salary may be $81,000 with a bonus of 25-50 percent of base salary.
- Second year associate: $100,000-$300,000 with an average of $135,000.
- Third year associate: $150-$350,000 with an average of $160,000
The Bottom Line
Private equity associates participate in deals from the beginning to close. Even entry‑level associates are an integral member of the team and need to have very strong analytical and leadership skills. Because the work is satisfying and the financial reward is great, landing one of these sought-after positions is difficult. Starting as a summer intern is perhaps the most straightforward path but many associates also enter the field from investment banking or management consulting.