Investment Banking to Private Equity Exit
Investment banking is known as a fast-paced, demanding career with long hours and high pay. But many investment bankers also see it as a stepping stone to private equity (PE), which offers a different set of challenges and rewards. The path from investment banking to private equity is a well-trodden one, but it requires careful planning, hard work, and a bit of luck.
Source: Worknest
Typical Timelines for Recruitment
Private equity recruitment is typically more structured and longer than investment banking recruitment, with firms typically recruiting for positions well in advance of the start date, often up to a year or more in advance. Private equity recruitment processes often involving multiple rounds of interviews, case studies, and modelling tests. Typically, the recruitment process starts with submitting an online application, followed by a screening call with a recruiter or HR representative. This is often followed by a series of interviews with junior and senior members of the private equity team. For junior positions, private equity firms often recruit candidates who have two to four years of experience in investment banking. However, some firms will consider candidates with less experience if they have relevant skills or experience in other areas, such as management consulting or corporate finance.
Prerequisites
Top private equity firms prefer candidates who have worked at top investment banks, such as Goldman Sachs, JP Morgan, or Morgan Stanley, as they have a reputation for providing excellent training and deal experience. Working at these banks will also help you build a strong network of contacts in the industry. These banks are known for providing rigorous training programs that teach candidates the technical skills needed for private equity, such as financial modelling, valuation, and due diligence. Investment banking experience also demonstrates that candidates have experience working on complex deals and have developed the necessary analytical and problem-solving skills required to succeed in PE.
Private equity firms place a high value on academic qualifications and tend to look for candidates with exceptional grades and academic achievements. Candidates who have top GPAs and graduated from Ivy League schools in the US or top-tier Russell Group universities in the UK are particularly attractive to these firms. This is because such qualifications demonstrate a strong work ethic and a dedication to academic excellence, which are highly valued traits in the private equity industry.
While private equity firms recruit candidates from a diverse range of academic backgrounds, certain degrees are commonly found among successful candidates. Business-related degrees, such as finance, economics, accounting, and business administration, provide candidates with a strong foundation and understanding of financial markets. STEM degrees, such as mathematics, engineering, and computer science, are also valued by private equity firms because they provide candidates with strong analytical and quantitative skills. Humanities and social sciences degrees, such as history, political science, and philosophy, are also relevant to private equity work as they develop critical thinking, research, and writing skills.
Learn PE-Specific Technical Skills
While investment banking also involves financial modelling, the type of modelling required in private equity is different. Private equity firms typically focus on leveraged buyouts (LBOs), where they use a combination of debt and equity to acquire a company.
To build a comprehensive LBO model, private equity professionals need to have a strong understanding of debt structures and the debt waterfall. They need to be able to create detailed cash flow projections, calculate various sensitivities, and perform scenario analysis to evaluate the potential risks and rewards of an investment. Common sensitivities used in LBO models include revenue growth rates, margin assumptions, exit multiples, and discount rates. Other technical details that are important to consider include the capital structure of the target company, the types of debt that will be used (senior, mezzanine, or high yield), and the covenants and terms associated with the debt. Private equity professionals also need to be able to analyse the impact of different debt repayment schedules on the overall returns of the investment
In addition to LBO modelling, private equity professionals also need to be skilled in valuation techniques, including intrinsic valuation and comparable company analysis. These skills are important in determining the value of potential investments and in evaluating potential exit strategies for portfolio companies. Candidates with an investment banking background should already be familiar with these concepts.
Another technical skill that is important in private equity is the ability to perform due diligence on potential investments. Due diligence involves thoroughly evaluating the financial, legal, and operational aspects of a target company to identify potential risks and opportunities. This requires a deep understanding of financial statements, accounting principles, and legal documents. If you are not already familiar with the latter, read our article on key documents used in M&A processes.
Overall, private equity requires a more specialized set of technical skills than investment banking. While investment banking may provide a strong foundation in financial modelling, it's important to seek out opportunities to develop the specific skills required for private equity. This may include attending specialized training programs or seeking out internships or entry-level roles in private equity firms.
Investing in your own professional development is crucial when it comes to transitioning from investment banking to private equity. For those seeking to gain the essential skills and knowledge needed to thrive in the private equity industry, Financial Edge's Training's PE Associate course is the best option available. This comprehensive course covers everything from financial modelling and valuation to due diligence and deal structuring. With our exclusive FCLIMB25 discount code, you can take advantage of 25% off this premium online course, which will take your career to the next level in the private equity sector.
Source: The PE Associate by Financial Edge Training
Interview Preparation
Preparing for private equity interviews is crucial to landing a job in the industry. Candidates should be ready to demonstrate their technical skills, financial acumen, and ability to think strategically about investments. These interviews often include case study and modelling tests, which are used to assess a candidate's technical skills and ability to analyse investment opportunities. Case study tests typically involve evaluating a potential investment opportunity and presenting a detailed analysis of the company, its financial performance, and market conditions. The modelling test may include building a detailed financial model to evaluate the investment opportunity, often using LBO modelling techniques. These tests can be challenging and require a thorough understanding of financial concepts and modelling skills. It's important for candidates to prepare by practicing similar case studies and modelling tests in advance, either through training programs or on their own.
In addition to practicing financial modelling, candidates should be familiar with the types of investments made by the private equity firm they are interviewing with, as well as the industries and companies in which they operate. It's also important to be able to articulate your investment thesis and how you would evaluate potential deals. Finally, candidates should be prepared to answer questions about their past experiences, including their successes and failures, and be able to demonstrate their ability to work effectively in a team. Researching the firm and its investment philosophy, as well as practicing mock interviews, can also help candidates feel more confident and prepared.
Networking Is Key
Developing a strong network is a crucial part of advancing your career in private equity. Networking in this industry is even more important than it is in investment banking, as private equity firms tend to rely heavily on personal referrals and recommendations to identify and hire the best candidates.
Attending industry conferences and events is an excellent way to connect with other professionals in the field. Joining professional organizations, such as the Private Equity Women Investor Network, and reading relevant publication such as the Pitchbook newsletter or Private Equity International, can also help you meet people and stay up to date with industry trends and developments. Reaching out to alumni from your school or previous jobs who work in private equity can also be a great way to build your network.
However, building a network is not just about meeting people - it's about building and maintaining relationships. Stay in touch with the people you meet by following up after meetings or events, sharing interesting articles or insights, and offering your help and support when you can. It's also important to be clear about your goals and interests and to let people know when you're looking for new opportunities.
By building strong relationships with people in the industry, you increase your chances of being recommended for new job opportunities or being considered for future roles in private equity. Remember, it's not just about what you know, but also who you know, so invest time and effort into building and nurturing your network.
Conclusion
In conclusion, the path from investment banking to private equity is challenging, but it's also rewarding for those who are willing to put in the work. By building your professional experience, learning technical skills, networking, and investing in your own professional development, you can position yourself for a successful career in private equity.
