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What in the world is a "private equity analyst"? A guide for students

Frances Chan

Careers Commentator
Find out what the field is all about and whether you'd want to pursue a private equity analyst internship!

1. But first, what's "private equity"?

 🏦 "Private equity" demystified
 ❓ Why do private equity firms exist?
 🆚 Private equity vs. investment banking: What's the difference?

2. What's a private equity analyst?

 ✨ "Private equity analyst" defined
 🔍 What do private equity analysts do?

3. Is private equity for me?

4. Where can I find internships?

Part 1. But first, what's "private equity"?

🏦 "Private equity" demystified

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.

  • These firms are on the lookout for companies that aren't living up to their potential. These "diamonds in the rough" might be struggling with cash flow, management problems, or just need a bit of modernizing.
  • Once a private equity firm steps in, it's game time: they infuse cash, spruce up operations, maybe streamline the workforce, and inject new strategies to get the business back on its feet.
  • The endgame? Sell the newly polished company at a higher price than what they paid (of course, accounting for any costs they incurred revamping the business).

In a gist, private equity firms find underperforming companies, polish them up, and sell for a higher price.

❓Why do private equity firms exist?

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:

  • Institutional investors (think pension funds, university endowments, insurance companies, and government funds).
  • Wealthy individuals.

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.

  • They're able to do this because they don't just throw funds at a company and hope for the best – they take it upon themselves to whip it into shape. As anyone who's run a business knows, it's often hard enough staying afloat – let alone making it two times, three times, or four times more profitable.
  • By doing this, private equity firms take on a ton of risk. You can sink loads of time and money into a business, but what if no one still wants to buy it after that's all said and done? But as the saying goes, "The higher the risk, the higher the (potential) reward." A private equity firm that successfully works its magic stands to make a lot of money in the long run.

This high-risk, high-reward approach is what attracts a certain type of investor—those looking for more than just passive returns and willing to weather the storm for potentially outsized gains.

🆚 Private equity vs. investment banking: What's the difference?

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.

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.

  • Private equity firms are on the "buy side" – the side that buys financial products.
  • Investment bankers are on the "sell side" – the side that makes and sells financial products.

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 – debt, interest, and all.

– Investment banking associate @ JP Morgan

Part 2. What's a private equity analyst?

✨ "Private equity analyst" defined

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.

🔍 What do private equity analysts do?

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.

Transacted Private Equity News

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 – just of a different kind.

It’s 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 you’re getting yourself into.

Transacted Private Equity News

Part 3. Is private equity for me?

Coming soon!

Part 4. Where can I find internships?

You can find plenty of internships on Prosple. We have a vast selection of internships curated for students like you. Filter 'til you find the right fit!