How to prepare for a rewarding career in Private Equity?

Flipkart, Snapdeal, Bharti Airtel, Pantaloons have redefined the way modern businesses run. All of us are witnessing their success. There are many factors that contribute to the success of companies such as a sound business model, strong leadership, customer satisfaction and many more. Among these is a very important factor called availability of capital.

Whether it is scaling up the operations, entering new markets or introducing a new product, a business requires funds at every step. Apart from the traditional sources of funding, Private Equity has emerged as one of the preferred sources of financing in the past decade.

What is Private Equity?

Private Equity firms not only invests large number of funds in companies but also participate closely through mentorship, stake holding and advisory services. In fact, they are not just investors but growth partners in the true sense. Unlike Venture Capital which invests only in start-ups with high-growth potential, Private Equity usually invests in mature companies.

A high degree of expertise, eye for identifying hidden gems and farsightedness are some of key qualities of Private Equity partners. These are individuals who have been associated with some of the biggest success stories in India’s corporate landscape. Being a part of Private Equity firms is a coveted profile for many finance professionals. On the flipside, even Private Equity firms recruit individuals who are exceptionally talented, academically inclined and possess astute analytical skills.

Different roles in a Private Equity Firm

  • Fundraising

This is mainly performed by senior professionals, however entry level associates may also participate in this. This mainly involves making presentations regarding the fund’s performance, its credit analysis as well its strategy for the future.

  • Identifying potential investments

This is a role wherein associates are largely involved. Identifying key investment opportunity entails conducting due-diligence, building financial models and explaining the investment rationale to the seniors as to why a particular investment avenue seems beneficial and what analyzing the expected returns on it. Not only this, associates are also expected to explain how the new investment would complement other investments made by the PE fund so far.

  • Managing portfolio companies

PE funds not only invest but also participate in the growth process. Once the investment is made, funds keep a track on the performance of the companies and provide advisory services as to how they can achieve operational efficiency and reduce losses.

  • Formulating exit strategy

This process requires in-depth analytical skills and sound knowledge of financial modelling. Associates and senior management work together to find a buyer and formulate a profitable exit strategy. Tracking the performance of the portfolio and reviewing them from time to time makes this process a lot easier.

Typical hierarchy in a Private Equity firm (with years of experience)

What are the skills required to get there?

Mostly CFAs and MBAs with previous experience/internship in consulting and investment banking are preferred. The role is a specialised one, hence the skills required would also be focused. We have enlisted some of the skills that will help you to make the cut in the Private Equity space…

  1. Knowledge across sectors: PE funds invest across a vast number of sectors. Though there are funds that are sector specific, most of the leading firms have exposure to a large number of industries such as Consumer durables/ non-durable, retail, Information Technology, Healthcare, Energy, Media & telecom etc. In fact, some funds are geographic specific such as Asia Pacific focused, EMEA focussed etc. So an understanding of business model, industry parameters, their strategic positioning and geo-political scenarios goes a long way in identifying potential investment avenues.
  2. Research abilities: For picking good investment prospects, analysing about the strategy of the fund and the returns generated, one needs superior research abilities. Identifying elements that need to be studied, the methodology of arriving at the findings, the sources that need to be approached and presenting the results in a lucid manner, all form part of the research skills.
  3. Good modelling and data analytic skills: A major portion of the job as an associate in a private equity firm involves modelling. An expert level knowledge of various kinds of financial modelling, excel and VBA are a must. Being a private equity associate, you would be involved in a lot of forecasting work. Not only should you be good at the technical aspects of modelling but also in making assumptions, choosing a method of valuation as well as deriving an optimal rate of return. Along with this, the role calls for sharp data analytics skills as well.
  4. Negotiation and networking skills: Being an associate in a private equity firm is not a desk job. One needs to have good networking as well as negotiation skills. Finding a deal, approaching the portfolio companies, fundraising etc. all involve excellent communication skills. The associate must maintain good relations with the portfolio companies, reflect the image of the private equity firm and convey its strategies very clearly.
  5. Preparation of Reports: One of the important tasks of the private equity associates is to present the findings through crisp and informative reports. The investment rationale, research and the analysis conducted need to be presented in a condensed form such that the senior partners can get the required information in just a glance. A high level of expertise in proper usage of charts and graphs, text and numbers is imperative while working in a private equity fund.
  6. Knowledge of database tools: Database tools such as Bloomberg, Factiva and Thomson Reuters are of great use to investment professionals. These are subscription based database tools for corporate/ academic purpose, which provide vast information on the companies, their competitive positioning, market data, share price, corporate action etc. Though there are free tutorial videos to learn the basics, one can be proficient in using them only if their previous employer had access to it. Another way to learn this is when your training provider or university has subscribed to the tools and has access to it.

The road ahead

Smaller funds may be reducing, but there is growing presence of pension funds and sovereign wealth funds in India. Private Equity funds are a niche segment and the demand of quality professionals continues to be ongoing. In the recent past, Economic Times reported that Barings Private Equity Asia, Advent International and Blackstone have hired undergraduates and graduates from top institutes for similar roles.

Most of the top Private Equity funds have become saturated at the top level and hence there is growing demand for junior to mid-level professionals for execution related roles. So fine-tune your skills, leverage your previous experience and aim for a rewarding role in a Private equity firm, now!

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