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Understanding private equity

After investment banking, private equity is the most sought-after profession for finance graduates. It demands a sophisticated set of skills and extensive knowledge of finance.

Even though private equity has been a prominent function in financial service, but burgeoning number of start-ups across the world has brought attention to private equity space.

Graduates from all backgrounds are taking interest in private equity. Good news? Private equity firms are open to hiring graduates from all backgrounds as long as they exhibit strong knowledge of finance and numerical ability.

How does private equity space operate?

Equity refers to shares of companies that are not publicly traded on stock exchange.  Firms buy company shares in exchange for money invested in a company. Private equity is dominated by PE firms. These firms buy equity in exchange for company shares. A company may require investment for many reasons – to build a new product, expand, or restructure. At times, PE firms may want to buy a company.

In simple words, a PE firm intends to generate wealth by identifying, investing, and increasing the value of a company.

How to start a career in private equity?

A career in private equity is lucrative. Hands down, finance graduates are rushing to it. However, making a career in private equity is a tough one. Getting into private equity is competitive and getting into popular private equity firms is tough.

Usually, at an entry-level, you get in as an Analyst, which requires strong knowledge of finance and numeracy aptitude. Internships, however, are the first step to get into private equity. If you have undergraduate degree in finance, economics, statistics or any mathematics-related background, it will be favorable. Most Analysts, take 2-3 internships, before finding their way into a PE firm.

Promising role in private equity is attracting professionals from other background as well. So people from other backgrounds taking private equity certifications and moving to it. Many professionals with experience in management and strategy consulting are also squeezing their way into private equity.

Experience in corporate investments is another route for people to move into private equity. Professionals who have spent significant amount of time looking at balance sheets, tracked complete financial history, and more have a good eye for judging growth and market scope, and hence with some effort they do go in private equity.

Skills required for private equity

To get into private equity, you need a strong set of skills, including—

  1. Finance – You may have background in finance, but understanding business finance is more important. A keen eye to derive insights from available data on transactions will make you stand out.
  2. Numerical and analytical mindset—You are constantly flooded with transactional data, frequently building financial models, and analyzing investment deals. For this, it is important that you can do mental maths fast.
  3. Communication skills—You are surrounded by VPs, Investment officers, CEOs, and other leaders contributing in an investment deal. For this, it is important that you can communicate clearly to them and share your feedback and opinion on deals.

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