The private equity industry has grown exponentially in the last decade. PE firms today manage nearly $3.8 trillion in assets, up from $716 billion in December 2000. A career in private equity, thus, is a good choice. If you want to break into a private equity career, read on to know the benefits and downsides of the career.
What is private equity?
Private equity is an investment in a non-public entity or private company. The investments can be made by an individual or a commercial institution in return for a small percentage of the profit made on the investment, fee, or both. These institutions are private equity firms. The majority of the firms that invest in private equity are headquartered in the U.S. 9 out of the world’s top 10 PE firms (in terms of fundraising) reside in the U.S. The firms need private equity investment professionals to help them manage the large load of raised money and invest it.
What do private equity professionals do?
Private equity firms employ some of the brightest and talented minds in the world. The firms hire recent undergrads, recent MBA grads, and experienced corporate finance professionals from all types of industries. These professionals help large corporations through their most challenging times and steer them toward the top. Successful PE professionals make billions of dollars for the investors and companies they work with while steering them toward the top.
Before you plunge yourself into a PE job search, you will want to know the benefits and downsides of working in the PE industry. So let’s discuss. Below you will find benefits and downsides of working in the challenging and yet fulfilling private equity industry.
Benefits of working in private equity
1. Good compensation
Private equity professionals with an MBA degree earned $296,155, while those without an MBA earned $ 264,464, according to the 2015 Private Equity and Venture Compensation Report. This, however, is the compensation of experienced professionals. New hires don’t make this much, rather anywhere between $100,000 and $120,000. By all standards, this compensation is still hard to match with any other roles across industries.
2. Strong employment outlook
Private equity jobs are hard to get. But once you get them, you are set for life. Additionally, the private equity industry is growing fast, requiring more professionals. According to the BLS (Bureau of Labor Statistics), the number of jobs in the finance sector is expected to grow by nearly 37% between 2012 to 2022. The growth rate is faster than the average of all careers.
3. Opportunities for experience
Working in private equity exposes you to various other industries. For instance, if you’re working at a generalist fund (where investments are made across different industry sectors), you will be exposed to a wide variety of businesses – pharmaceuticals, technology, oil and energy, retail, travel and hospitality, and more. You can continue working at a generalist fund and gain exposure to various businesses or develop a strong understanding of one the sectors and switch to a boutique PE firm, hedge fund, or an investment bank.
4. Opportunities to transform a company
PE professionals not only help make investments but also steer companies toward improvement. They work toward making a company attractive for IPO or a buyout.
5. Inspiring work environment
You will be working closely with people who make deals and buy and sell companies. Private equity firms are a melting pot of challenges, where you will work with some of the most creative people and problem solvers. Each PE project will throw a different set of challenges at you. You need to be ready to solve them.
Downsides of private equity
1. Breaking into the industry is tough
It is challenging to get an entry-level job in a private equity firm unless you’re from a top tier business school or have investment banking experience or hedge fund.
2. Limited growth opportunities at firms
Guys at the highest rung of the firm aren’t going anywhere. So associates and senior associates have extremely low chances of moving up the ladder. However, you have an opportunity to start your own firm or move to investment banks or hedge funds.
3. Often-stressful work environment
Private equity matters are a high stakes game. The proceedings of private equity matters move at a fast pace and investee companies may require crisis management. This can push even the most independent of professionals to want to spend time with family.
4. Lack of gender parity
As of March 2015, only 11.7% of senior-level positions are held by women in PE firms, according to Preqin. Ethnic minorities are underrepresented in U.S private equity firms.
5. The negative perception among the public
A negative view of the private equity industry circulates around – that PE firms are bad for companies and employees and cause job losses. This is contrary to the view held by thousands of investors and companies that believe direct investments allow companies to hire workers, invest in R&D, and more, which ultimately drives growth.