1. But first, what's "private equity"?
γπ¦ "Private equity" demystified
γβ Why do private equity firms exist?
γπ Private equity vs. investment banking: What's the difference?
2. What's a private equity analyst?
γβ¨ "Private equity analyst" defined
γπ What do private equity analysts do?
4. Where can I find internships?
To understand private equity, let's start with a concept you might already know: house flipping. People who "flip" houses might buy a rundown house in a prime location, fix it up, and sell it for a profit. House flipping is about spotting potential, making smart upgrades, and cashing in on the improved value.
Now, picture doing the same, but with businesses instead of houses. That's the private equity playbook.
In a gist, private equity firms find underperforming companies, polish them up, and sell for a higher price.
To understand why private equity firms exist, it helps to remember that they are essentially big pools of money. Where does the money come from? Investors aiming for big wins. These include:
Why do all of these investors chip in? Well, they're hunting for profits that beat what they'd usually get from things like stocks or bonds.
At the heart of investing is a simple principle: buy low, sell high. Well, private equity firms take this concept to the next level by buying super low and selling super high.
This high-risk, high-reward approach is what attracts a certain type of investorβthose looking for more than just passive returns and willing to weather the storm for potentially outsized gains.
To better understand private equity, it helps to compare them to investment banks, where many of you are probably also considering starting your careers.
Think about it like this: Private equity firms buy businesses while investment bankers sell them.
An investment banker is like a real estate broker who matches property buyers with sellers. A private equity firm buys the real estate and then manages the property afterwards.
β Former head of financial market research @ AQR Capital Management
In other words, private equity firms and investment bankers are on different sides of the financial marketplace.
So if you work at a private equity firm, you're thinking as an investor ("Should I invest?") whereas as an investment banker, you're thinking more like a salesperson ("How do I pitch this?").
Private equity and investment banking work sometimes does intersect. For example, JP Morgan might offer a company a special loan called a "payment-in-kind (PIK) debt." We don't expect them to pay us back monthly like with a regular loan. So they'll keep accruing debt until they get bought out by a private equity firm, and then they use the money from the buyout to pay us back β debt, interest, and all.
β Investment banking associate @ JP Morgan
A private equity analyst is the starting position for recent college grads entering the world of private equity.
This role is relatively new. In the past, you'd need a few years of work experience (usually at an investment bank or top consulting firm) or an MBA to get into private equity. Now, impressive college grads can land these jobs too.
Private equity analysts do a lot of work that's similar to investment banking analysts.
Expect a lot of PowerPoint, random research assignments, assisting in diligence analyses, admin work/scheduling, and modeling. You also may have some light exposure to portfolio company operations/management/reporting, depending on the firm.
They usually do less grunt work than their counterparts in investment banking. But it depends. At some firms, they also do quite a bit of grunt work β just of a different kind.
Itβs worth noting that analyst work at growth equity shops will also probably include a pretty heavy sourcing component. It depends where you end up, but some are well known for this. Plenty of people enjoy this type of work, but make sure you know what youβre getting yourself into.
Coming soon!
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