You’re thinking of making a career change into Private Equity. How do you prepare for it? (2024)

FAQs

You’re thinking of making a career change into Private Equity. How do you prepare for it? ›

Private equity firms usually look for entry-level associates with at least two years of experience within the banking industry. Investment bankers usually follow the PE firm career path as their next job and typically have a bachelor's degree in finance, accounting, economics, and other related fields.

Private equity firms usually look for entry-level associates with at least two years of experience within the banking industry. Investment bankers usually follow the PE firm career path as their next job and typically have a bachelor's degree in finance, accounting, economics, and other related fields.

As big firms usually prefer to hire candidates with internships at other private equity firms, consulting or investment banking, focusing on smaller firms and jobs in these complementary fields is usually a good way to eventually get a job at a top private equity organization.

To break into private equity, a strong educational background is essential. Most professionals have degrees in finance, business, or related fields. Relevant experience in areas like investment banking or consulting is highly regarded.

but nowhere near as much as in management consulting. While the travel will be less, the work in private equity is very stressful and demanding, so the hours you actually spend working may be more stressful or mentally demanding.

For the vast majority of first-year private equity associates, the base salary is around $135k to $155k. Then, based on fund performance, bonuses tend to range from 100% to 150% of the base salary.

The 2 and 20 is a hedge fund compensation structure consisting of a management fee and a performance fee. 2% represents a management fee which is applied to the total assets under management. A 20% performance fee is charged on the profits that the hedge fund generates, beyond a specified minimum threshold.

PE firms look for candidates who have strong financial and analytical abilities, industry knowledge, deal-making skills, and leadership potential. They also value relevant experience in investment banking, management consulting, corporate finance, or operational roles in target sectors.

Vice presidents at large PE firms can expect to earn a total compensation of $500,000 to potentially $1,000,000. At higher levels, the base salary doesn't grow as much but the bonus becomes a greater percentage of the base. Additionally, carried interest begins to play a larger role in total compensation.

What is the rule of 72 in private equity? ›

The Rule of 72 is a convenient method to estimate the approximate time for invested capital to double in value. By merely taking the number 72 and dividing it by the rate of return (or interest rate) expected to be earned, the output is the approximate number of years for an investment to double.

The typical split in profits between LPs and GP is 80 / 20. That means, the LP gets distributed 80% of the profits on an exit (after returning their initial capital) and the GP keeps 20% of the profits.

Investment banking is all about providing capital to companies who need it. Private equity, on the other hand, is about buying companies and then growing them. So, if you're interested in finance and deal-making, investment banking is the way to go.

A career in private equity is one of the most desired professional pathways for a number of reasons – it can be extremely lucrative, it's intellectually rewarding, and in general provides a better work/life balance than other highly competitive areas in finance such as investment banking.

These odds are similar to or worse than playing any of the professional sports. Less than 1% of the population size pursing any competitive field is likely to compete at the elite level. In the highly competitive world of finance like hedge funds or PE, less than 1% of students break into one of the top 10 firms.

It's quite difficult to get promoted to VP because the nature of the job changes a fair amount at that level. Many Associates and Senior Associates at larger PE firms realize there is no great path to VP there, so they end up going downmarket to advance.

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.

Candidates should have an bachelor's degree in an analytical major like finance, accounting, statistics, mathematics, or economics.