Updated October 11, 2023
A Private Equity Analyst is an entry-level employee working in the private equity domain who checks which businesses have growth potential and can make a lot of money after the private equity firm buys or invest in them.
So, you have decided that you want a career in finance and are considering various career options that would suit you and your skills the best. You must have heard much about investment banking and equity research but would want to know what else is in finance. Private Equity Analyst could be an exciting career option for you. Private equity firms have increasingly become essential to the economy, providing various career opportunities. If you enjoy interacting with people, conducting research, and are interested in performing due diligence and managing portfolios, this field could be a good fit for you. The work you do in Private equity can be defined in these three words: detailed, engaging, and demanding. But yes, it could be a tough nut to crack as these jobs are not highly advertised, and these firms are secretive when learning about their operations.
This article assists prospective candidates considering private equity as a profession and provides clarity for aspiring private equity analysts.
Private Equity & Private Equity Analyst
Before we get into details, let’s understand this challenging field. Simply put, a Private equity firm is a group of investors who collect a pool of capital from wealthy individuals, insurance companies, pension funds, endowments, etc., to invest in businesses. Hence, private equity is not an adviser but an investor. Private equity analysts are individuals who work primarily for private equity firms. A Private Equity Analyst is a person who does research, conducts analysis and gives interpretations on private companies. These analysts use financial modeling techniques to assess the advantages of investing in a private company. These firms manage portfolios and investment funds of private companies.
Role of a Private Equity Analyst
- Since these companies are privately owned, the stock’s market price is not ascertained; hence, the role of an analyst becomes essential as they need to provide an accurate valuation of the company’s shares where it wants to invest. Moreover, the tasks of the private equity analyst will depend on the investment strategy that a private equity firm undertakes at a particular time.
- When a fund wants to invest in private companies, it undertakes due diligence analysis, prepares financial models, uses accounting techniques to appraise the business, and conducts a company valuation to determine its potential.
- A private equity analyst needs to determine if the acquisition of an equity fund would meet its investment objective; for this, they need to carefully assess the company’s financial statements and compute the present value of a discounted stream of the company’s projected future earnings.
- When the private equity firm proposes to change the capital structure of the company it wants to invest in, the private equity analyst needs to work around various assumptions to prepare financial scenarios. This will help determine the optimal mix of debt and equity to maximize the return on investment.
Job Description of a Private Equity Analyst
Let’s now understand the job description of a private equity analyst. A private equity firm invests in various small potential companies. But the question is, where does the fund for investment come from? The answer is that many big investors invest in such funds; such investors are called Limited partners. So, collecting the funds from the limited partners, the PE firm invests in smaller companies. So, let’s now analyze what a private equity analyst does.
Here, the private equity analysts are involved in raising funds for investments. The presentation for the same includes the funds’ past performance, strategy, and past investors. Other analyses may consist of credit analysis on the fund itself.
- Screening for potential investment opportunities
Private equity analysts play a significant role in screening for investment opportunities. Identifying the critical investment rationale and analyzing the financial models form a substantial part of this process.
- Strategy based decision making
A private equity analyst will analyze and compare exit strategies. Analysis of the EBITDA multiple is one of the approaches. This process again requires in-depth analysis for proper analysis.
- Equity research analysts also make investment decisions, manage investments and portfolio companies, and forecast future returns.
Pre-Requisites for a Private Equity Career
The entry-level job available in private equity is an analyst or associate. People applying for these jobs must have a Bachelor’s or Master’s Degree in Finance, Economics, Investment Analysis, or Accounting. The work would require attention to detail and be demanding, but it can also be exciting. One might have to work long hours. It would involve a lot of interactions with firms, bankers, and consultants to get your project rolling. As it mainly focuses on debt, you will quickly become an expert on the debt markets, especially the syndicated bank loans and high-yield bonds arrangement commonly used in buyouts. The experience one gets out of these jobs is invaluable for a bright career in this field.
Skills of a Private Equity Analyst
- Industry knowledge: To excel in this field, one must have a good understanding of the industry structure, its workings, etc. This would enable the professional to work efficiently in this fast-paced environment. They need to develop skills to develop excellent investment and business judgment. It becomes particularly critical when one wants to make it to the top.
- Analytical skills: The core work of an analyst would include analyzing and interpreting the financial statements, LBO models, financial and economic scenarios, etc. They would be required to provide financial insights into how a particular company stands financially, comparing it with the market conditions and conducting detailed research analysis. The job of an analyst requires them to come up with creative solutions to problems.
- People skills: As mentioned earlier, analysts need to interact with insiders and many outsiders for networking, which is critical to your success. Good leadership and communication skills are essential for working effectively in teams. It also involves interacting with the senior members of private equity firms to acquire intelligence on existing and potential investments.
- Like other financial professions, private equity demands hard work but typically entails shorter working hours than investment banking. A Private Equity Analyst day typically starts around 9.00 a.m. and generally leaves between 7.00-9.00 p.m., depending on the work.
- You could work on some of the weekends or part of it subject to work related to some active deal.
- There are PE firms that work more like traditional companies where you work in your cubical, but there are certain that have a more casual work environment.
- This job involves a lot of interaction with everyone, including the senior associates.
- In addition, a culture of performance exists since a significant part of their reimbursement depends on how well the investments do. Their focus is on maximizing the value of all portfolio companies.
Private Equity Analyst compensation typically includes base and bonus. Like other allied fields, the bonus in private equity is based on individual and fund performance. Funds’ performance is generally given a higher weightage.
If we compare the private equity industry, individuals with an MBA degree have a 5% higher margin than those without an MBA degree. Looking at the pay scale offered, the average salary for a private equity analyst in India ranges from INR 3 lakhs to 15 lakhs per annum for entry-level to as high as more than INR 50 lakhs per annum, depending on growing years of experience. In New York, US, the same profile will earn $ 40,000 – $1 00,000 a year, and in London, GBP 23,000 – 58,000.
The leading private equity firms worldwide include Goldman Sachs Capital Partners, Kohlberg Kravis Roberts (KKR), The Blackstone Group, Apollo Management, and Bain Capital. Key Indian private equity firms include Baring Private Equity Partners (India), Chrys Capital, Cipher Securities India Pvt Ltd, ICICI Ventures, and IDFC Private Equity.
It would be difficult to say if this would be the right profession for you. The decision would be personal and dependent on your aspirations for lifestyle and salary. I hope the above information proves helpful to you and helps you to decide your fate in this exciting field. All the very best!