Private Equity in a Nutshell

Hey, I know that PE hours are usually MUCH better. You can still get a tough PE shop that will be understaffed and work you hard, but rarely the type of hours an analyst at an investment bank will see. I've heard guys in PE working 50hrs a weeks, and I've heard 80hrs a week. The ones working 80hrs a week it usually only last for 1-2 weeks at a time when a deal heats up and it is still less bitch work so that makes a difference in quality of life too...

Basically, I feel that PE is like Investment Banking graduate school. You cut alot of the crap like last minute pitches and PIBS, but it's still mostly financial modeling and the like. You model a deal, do diligence that generally involves crunching numbers, and then get operational guys to turn-it around. It's still better than banking because the work is more interesting, but we're investors, not operators.

This usually works for me: "I work in finance."

"I work in finance" is usually a good go-to answer.

To explain PE, use a house as an example: "You know how some people buy houses, fix them up a little, and sell them for more? We do that, but with companies."

Should get the basic point across.

I would say you're a PE intern (don't say PE, say private equity). then briefly explain what it is. @"Hugh Myron" gave a great example, I'd just steal that.

I personally wouldn't say "I work in finance" if you're talking to people you care to continue talking to. reason being: tellers and insurance salesman say they work in finance...

We take investor funds to buy companies, grow them, and sell them for a profit.

"Other people give us money and then pay us 1 - 2% pa on every dollar of that money we spend."

I usually say I'm a big swinging dick who makes Gecko look like a piker. If you're not liquid to a few hundred mil you're shit.

I just say I work in finance. If someone cares and asks more I go into one of the explanations above. Depends on how much someone is interested. Most of the time people ask what you do just to have something to talk about. Kind of like talking about the weather.

I just say:

"I own a bunch of sweat shops in the Philippines... you should see those kids make those hats"

for females you can always use the richard gere in pretty women explanation

Otherwise i would make sure to use the words international business, high finance (spoken fiiinance) and leverage in an aggressive manner.

Ask them if they know what a mutual fund is. Say - that invests in stocks right? Like stocks that you can buy in public markets? Well PE is similar but in private companies (use the local coffee shop or any small private company/ enterprise that they will know of as an example). Then say, to the person "so you owned a company, and I had a fund. People who invest in my fund are pensions, university endowments and rich people. Now your company probably isn't big enough to be on the stock market is it? It's not like Nike, Pepsi etc, right?" they will shake their heads. "Well my fund would buy your company, try to grow it and sell it to some other person, company or fund for a profit."

That usually works. Or if people are confused but interested, I draw it out on a sheet of paper. A box in the middle that represents the fund. 1 box above that with a line drawn down which represents the LP. (I saw assume the LP invests $100). Then three boxes below that respresents investee companies. I assume one write off, one investment making like 2x or cost and one home run deal. Then I show them how carry works (I also assume 2% flat management fee a year).

So the $100 becomes $90 to be invested since investment periods are 5 years long (I ignore the back end). Assume the $90 becomes $180 ie $90 bucks profit .Take 20% from that and that's carry. Investor is left with the rest. Explain that management fees pay for salaries, office space, flights, lawyers etc (just to keep it simple). After they understand it, make the $100 into a $1bn dollars and all the sudden people are like "whoa PE guys can make a LOT of money!! I'm in the wrong business"

Oversimplified, but that's what I usually do so that people can grasp the basic concepts if they are interested in doing so

this is what I would tell "We find undervalued companies, buy them, make them even better and sell them for a lot more than what we bought them for". Also using the housing example as some one stated above drives the point.

When it is someone that you do NOT wish to go into detail with about what you do. (spouse of someone you dislike, some drunk at a bar, random airplane seat neighbor) I just say that I am a garbage man or that I drive a garbage truck, nobody really asks anything further or wishes to continue the conversation. Sometimes the way out of that question is more important to have in your back pocket.

If you can't explain it in simple terms then there is a strong chance that you don't have a good grasp on what it is that you actually do... If you can't explain it to a child or to your grandmother, you are either overthinking it or don't understand it yourself.

How about you just say, "I work in private equity.". 99% of people will know what it is or don't give a shit. If they care to know more, they'll ask.

This question makes me wonder how many autistic people visit WSO? You're failing Life 101, so I'm amazed you can actually hold a job down, let alone one in PE.

For the remaining 1%, just tell them you turn lumps of shit into piles of gold.

I have always just compared it to when people buy and flip houses. Much easier than trying to explain all the components of your particular group's investment strategy.

The Galaxy Beam (http://www.samsung.com/global/microsite/galaxybeam/feature.html) is perfect for this. You can pre-load a simple powerpoint presentation and then use the phone's in-built projector to walk them through your job. even sticking to the "no more than 7 bullet per slide" rule, you can typically keep it to less than 20 slides.

I usually carry hard copies of the slides with my contact details on the last slide of the hard copy, but sometimes you get stuck without your brief case and just have to rely on the projector-phone.

If they have questions not covered in the slides, I suggest you give them a brief answer (30 seconds max) and ask for their contact details so you can give them more information offline. This is a great way to collect digits.

Serious answer: "I work in finance. [insert question here that lets you both talk about something interesting that doesn't involve long exposition on your part]".

You're looking for conversation, not an excuse to lecture someone about what you do.

well, there isn't such a thing as guaranteed profit, but PE is mostly about leverage (debt), multiple arbitrage (not gonna happen with current deals though), and ability to spot undervalued assets. The operational improvement thing has been talked about for years, still only a few shops really doing it... at the core, it is just very very tricky to do turnarounds, high risk with all that debt, and you don't want to antagonize management...

strat consulting background is valued by some shops, not others. Would advise you to switch and do an analyst sting at a PE shop before b-school though, afterwards it gets real difficult

You buy companies and then sell them for a profit

Flipping houses. Only with businesses.

Private Equity is an asset class, just like real estate, stocks, bonds, baseball cards, etc. It consists of the ownership securities in privately owned companies versus public equity which is publically available on a stock exchange and anyone can buy it. Private Equity firms specialize in investing in that asset class, typically either with the own money or they invest other people's money in that asset class for them.

"You see a streetwalking prostitue in some poor, agrarian Eastern European country. Say, Moldova. She's got a slim body, 5'10'', but her fashion sense is way off and you know some basic facial toning/therapy could turn her from a 6 to a 10.

You fly her to a high-earning country [analagous to tax inversions to a lower corporate tax rate country], fix her up, now she's gorgeous.

Pimp her out for $5,000/night. You keep a healthy percentage. Voila, private equity."

*note- I don't condone any of the activities above, as (depending on jurisdiction) could be illegal. It's purely a thought experiment.