Breaking into Private Equity: Podcast

[Canary Wharfian1]

The world of private equity (PE) is both intricate and enticing for those interested in pairing financial acumen with business development. In a recent episode of the Canary Wharfian podcast, Jonathan, an experienced private equity professional based in France, provides valuable insights into this high-stakes field, tailored for students and recent graduates curious about what it takes to enter and succeed in private equity.

What Is Private Equity?

Private equity involves investing in companies that are not publicly traded, positioning funds to facilitate growth and development. This financial sector is characterized by a wide array of niches, from large-scale operations with billion-dollar funds to smaller, more specialized firms targeting emerging markets like Africa. Jonathan emphasizes that modern private equity is relatively young—having developed significantly over the past 50-60 years—and encompasses many strategies and approaches. Some branches focus on aggressively leveraging companies, while others underscore investment in growth and development, often contributing positively to economic prosperity.

Large players in the PE space, such as Carlyle, have an international presence, enabling them to launch extensive funds with ease. Conversely, smaller firms may concentrate on niche areas, requiring a deeper understanding of specific markets or sectors.

Why Go Into Private Equity?

Jonathan describes private equity as a fascinating career path, lauding its potential for high remuneration, especially for those who attain the role of general partner, sharing in the profits of successful funds. While the financial rewards can be substantial, they often follow a less traditional career trajectory compared to investment banking. Initially, PE professionals may earn less than their counterparts in banking, but successful fund performance can lead to sizable rewards.

The ideal private equity professional is analytical yet genuinely interested in business and people. Their role involves extensive interaction with stakeholders and the subjective task of assessing which entrepreneurs and business ideas merit investment.

Private Equity vs Investment Banking

Although overlapping skills are required in PE and investment banking, there are distinct differences in work style and environment. Investment banking is often associated with long hours and a more rigid professional mold. In contrast, Jonathan notes that private equity favors introspective individuals who delve deeply into projects, analyzing data and working systematically, perhaps making PE more suitable for slightly introverted candidates.

Initial salaries in the banking sector—especially at global powerhouses like Goldman Sachs—tend to be higher. Entry into private equity is less standardized than in banking, with diverse pathways including investment roles, asset management, or niche private firms, necessitating a proactive job-seeking approach.

Chain of Command

Private equity firms, typically structured as partnerships, consist of general partners (GPs) who manage the fund and limited partners (LPs) who provide the majority of capital. GPs make key decisions and oversee investment teams tasked with identifying and analyzing investment opportunities. The structure tends to be flat, allowing for interaction across roles and levels of seniority.

Business Model and Compensation

A common remuneration model in PE is the "2 and 20" structure: a 2% management fee and a 20% performance fee. The expectation is for GPs to contribute a single-digit percentage of the fund's capital to ensure alignment with LPs. Compensation for GPs is significantly tied to fund success, incentivizing effective management and sound investment decisions.

Advice For Students/Graduates

Jonathan advises students and graduates not to passively await opportunities in private equity but to actively seek them out. This involves thorough research and proactive engagement with firms to express interest and dedication—a critical step in gaining entry into this competitive field. Demystifying private equity recruitment, he highlights the importance of perseverance, research, and building genuine interest in desired roles and companies.

Listeners interested in delving deeper can find additional resources on the Canary Wharfian website. Ultimately, Jonathan's insights provide an enlightening glimpse into private equity, offering a roadmap for aspiring professionals ready to make their mark in this dynamic industry.