Q&A: 3rd Year Associate - Private Equity
Open to questions of any nature from those working in and interested in Private Equity. I worked for a well-known boutique M&A bank before entering the Private Equity industry a few years ago.
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What do you love about your PE career? What do you hate most about it? Was it a struggle breaking in?
I enjoy the ability to partner with and build relationships with great management teams, and the ability to understand a business in detail, its drivers, risks and areas to create value, finance it and add operational value over time. I enjoy the creativity and debate that surrounds investment structuring and decision making, and throughout the investment period. There is a lot to learn in a short space of time, which is highly rewarding. PE requires the building of a broad range of skills so you definitely have to make sure you get exposure to many different topics and can learn a lot.
Entering the industry has a demanding interview process, and justifiably so. It requires belief from the firm hiring that you have the potential to grow across a broad range of areas - identifying interesting opportunities, building relationships internally and externally, adding operational value, working on and leading diligence streams and process, and driving towards an exit.
Thanks for doing this! What can you expect in your first month as a new PE associate? What can you expect in the first 6 months? Any top tips or do's/don'ts you'd be able to share to make a good first impression?
In the first month, you can expect to learn a lot about how the firm works in terms of IC set-up, portfolio company interaction, diligence focus areas etc. I would focus in the first month on proving that you are a safe pair of hands, that you are keen to learn and can complete work-streams accurately and efficiently. You may be working and helping on a broad range of initiatives. Over the first 6 months you can expect to be involved in portfolio company initiatives and deals from beginning to end.
Top Tips:
- Understand the broader implications of what you are doing and think with the objective in mind - what is this piece of analysis trying to answer? What may some of the limitations be? What else may I need to know?
- Know when to ask for help - it is always better to clarify where needed
- Build relationships and trust across the team - good interactions in and outside the office are key to good team building
- Volunteer to be part of as many projects as possible that you can manage
- Focus your first year in the industry on understanding how people make investment and financing decisions and operational strategic decisions and developing confidence across various workstreams, such that you can lead more and more in the years that follow
- Learn how to pre-empt work that needs to be done as you learn by experience
Thanks, thats helpful to know. In your experience, to what degree are you expected to lead workstreams and plan (using senior as sounding board) vs. more being delegated work to execute on?
Hi thanks for posting this! I’m thinking of going the same path and wondering what made you switch from M&A to PE? Did you find your background in M&A useful? And also did you stay within the same firm or move to a PE-specific firm? Thanks!!!
I moved to a PE specific firm as my firm didn't have a PE arm. I found M&A useful to understand the core technical, financing and presentation skills to provide a base level fo knowledge, and to gain experience with various parts of the deal process. It was good also to start to build relationships in the ecosystem.
I moved to PE as I wanted to gain more ownership of the investment decision, a broader deal exposure, and to be operationally involved upon acquisition driving towards an exit. PE allowed for the building of a broader range of relationships across the deal and investment process.
Do I need to be doing M&A or levfin at a BB if I want to get to a UMM PE or MF? Right now I’m at a known firm (not an actual bank) doing MM M&A
I would say MM M&A is absolutely fine. I was not at a BB - you will have different gaps in your skillset based on where you come from.
I would say mostly M&A or coverage group to get into PE. Being in lev fin is better for people trying to go to credit funds, as there's a higher bar for lev fin candidates to enter into traditional PE roles.
For people coming from Lev Fin, what do you think is the biggest challenges in making the switch to PE?
Can you give a little more background on your firm (fund size, industry, location etc.)? Think that would be really helpful in guiding the Qs that come in.
Sure - c. 750m-1.25bn fund size, in London, generalist.
Current analyst at BB coverage group. Don’t like being at my type of bank/in a coverage group. Any advice about lateraling and do you think boutique was worthwhile
I would say if you are more interested in a PE role, then it would be good to stay at your current institution and transition directly. If you are interested in M&A long-term then a boutique is a great option as you can work more directly with seniors, own more work-streams, build broader relationships etc.
Can you give another data point (know it's been covered already) on how life in PE is different COVID vs. non-COVID? Thanks
Sure - I think there was a period where it was challenging to travel, and deal activity paused as financing for deals paused. Now leverage markets have picked up, there is a large amount of activity in the LBO space, and things are much busier. Many firms are working from home, but the activities are the same, though more management meetings, negotiations etc. are virtual.
Hi, I'm a new associate and I am struggling to find my voice in meetings, IC meetings, etc.. My firm has made me aware of this and I am working to develop this skill. Any advice on how to build this skill and steps you took from starting in PE? I am not nervous to contribute per say or lack substance to contribute, it's just tough due to the deal team deal dynamics, the number of people involved during meetings, me being one of the only junior members of the firm, etc...
Tell us more about what your contribution was on the last deal? Was it the pricing or underwriting, or across the board supporting the various teams? Was there anything in the deal you took specific ownership over and led?
I manage all the analysis and memo writing required to get a deal through IC from initial stages to final IC approval. I own models, memos (do almost all the writing and analysis in them), funds flows, helping coordinate with third-parties (but not leading calls). I also create question lists and request lists for any calls... also involved on portco side and build reporting packages, work with CFOs, etc. I have one year of experience as an associate. I chime in occasionally on banker calls and when we talk to industry resources.
I would say that it's completely normal for it to take a few months to learn the basic skills before you are able to take a more active leadership role. I would start by leading one stream at a time - on the next deal you work on, ask the deal team if you can lead a particular stream / portfolio initiative, which you seem to be doing. Before an IC meeting, ask one of the senior deal team members if you can present a work-stream to the IC - you could even offer to present it to them first to build trust and then present to IC. Over time, you can then increase the number of things you are presenting. It seems you are doing a great job already of owning more of the deal process. I would also be more active in the sourcing process, speaking more on banker calls and offering to lead expert calls early on in due diligence is a great place to build leadership skills too!
What percentage of associates/analysts come from IB background? Any other areas?
This varies by fund - for some it's fully from an IB background, for others its split evenly between IB and Consulting, some funds also hire from corporates etc.
Hi.
Which funds hire from corporates? Are they typically hiring corp dev professionals?
Can you comment on associate comp progression from year 1 to year 3. Also fund size/total AUM and tier city would be nice to know.
Sure there is a meaningful increase, and as you progress you are also eligible for carry.
Can you give actual ranges please?
How do you see your progression to VP/Principal coming along?
Is it clear which associates will make it or which won't? When does it start to become clear (i.e., is it easy to spot in the first months who's killing it or does it take a lot longer and change over the first 2 years?)
How have the best associates set themselves apart?
I feel confident about my progression. I wouldn't say it's about Associates making it or not at this level, funds tend to be supportive of training you to develop, and assess potential for promotion in the initial hiring process. I think key skills to differentiate yourself include:
- An ability to think of investment thematics, build relationships (with advisors, potential management teams, shareholders) and be involved in sourcing
- Demonstrate an ability to lead deals end to end and add value to portfolio companies
- Show good judgement across the deal lifecycle, and when negotiating - this comes from experience, and a good business sense
Thanks for doing this!
In your view after how many years of experience is best to move to PE? I know in London it's somewhat more flexible. Currently a third year analyst and would like to do a rotation to another country before moving to the buyside, so ideally would like to move after 4 years of experience. Do you think this would make it more difficult?
Sure. I would say after 4 years is possible but there are a lot less moves at that point, most common is 1.5-3 years!
Thanks for this.
Can you talk about how the overall changes in the markets since COVID started have impacted Private Equity. Do you see a focus on certain sectors given the high multiples/valuations or has your fund continued the same strategy? Additionally, has exits to the public markets through IPO/SPAC become more attractive?
Sure I think what was seen from the Summer onwards, once financing came back for buyouts was that there was a focus on non-covid impacted sectors (particularly healthcare and software) which pushed high multiples even higher, and leverage providers focused on backing those buyouts. There has also been a growth in structured transactions (e.g. earn-outs, vendor loans) to share risk around future uncertainty. Certain sellers have deferred selling until 2021 when they have a more sound LTM to sell the business from. I haven't noticed any change in appetite for exits to public markets, although in recent weeks this has become more attractive given the strength of markets in recent weeks.
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Would love an insight into the movement from different work backgrounds compared to others. I have a year long placement secured at a BB for AM in London next year and have a long term view of hopefully working in the finance industry for a long time. Is there generally lots of movement from AM -> PE or does the M&A background help the most?
Congrats on the placement! I think most of the movement is from IBD or Consulting into PE, it's less common to see people move from AM into PE, but I have seen it a few times.
I just recently finished undergrad and started a job at a small family office on their private equity team. I was aiming for IB, but fell short. I'm planning on getting my MBA in 3-4 years to break in as an associate, but have also thought about trying to break into PE instead. My main concerns are... 1) I know its hard to break into PE out of an MBA without prior banking experience, but do you think its feasible given the experience I have after working at my current firm? 2) If so, what are your thoughts on working in PE vs banking post-MBA? Specifically pay, career progression, QOL, exit ops, etc.
Thanks!
1) It would indeed be feasible, I have seen it done before so long as technical skills tested in the private equity interview process are sound
2) I think most likely if you are keen to work at the larger funds it could make sense to go into banking first, career progression wise I think it wouldn't make too much of a difference, quality of life wise I would say this is quite fund dependent vs. banking / private equity!
I work in Valuation and do illiquid valuations for various investment funds (PE, HF, etc). If I want to work in PE eventually, is there a direct path from my valuation role or would it be necessary to lateral to IB and eventually try to recruit from there. Essentially, what is the feasibility of recruiting from where I am at?
Thanks for taking the time!
I would say having transactional experience is important, I don't typically see many people move directly from valuations to PE.
I started in valuations. My path to PE was through a MM IB followed by a higher quality boutique IB. Best path if you can swing it.
Why do you think you didn't get promoted to VP and are still an associate at the end of year 3?
I'm not at the end of year 3!
As someone in London who is thinking of going into PE, two questions:
1) is it possible to find funds where there is little to no weekend work, and hours dont top 60hrs a week in general
2) are you severely at a disadvantage if you do not speak any European languages? Talking for MM and LMM funds
Thanks!
1) This is difficult - I think most funds require hard work, and work at the weekends is often reading to prepare from the week ahead. I would focus on finding funds where there is a culture of efficiency, you enjoy the work and investment focus, flexibility of your schedule and doing meaningful work, instead of thinking of number of hours
2) At the entry level I wouldn't worry too much about this - there are roles for both so you aren't severely at a disadvantage
Ok thanks a lot!
Last, I have sometimes heard that people can break their way in from big 4 TAS in London, is there any truth to this from what you have seen? Or does everyone come from banking?
On your first point, weekend works tends to be more "at your leisure" / handing things that take too long to do during the day. It's not like banking where someone drops a deck of comments at 5 on a Friday and says "lets turn this by noon Saturday and then again by noon Sunday" but rather "we're having a call on Monday, lets be ready for it" or "be prepared to discuss if a deal is interesting or not for a meeting on Tuesday". This allows you to still do things on the weekend.
Regarding point 2, most countries in Europe outside of UK / Amsterdam seem to be country focused, so speaking the local language is key. If you look at most French / Spanish / German / etc. funds, most of the employees have names that match the language, as a need to speak the local language is key. Even in London being able to speak another language helps if your fund invests in that country. All of the work is done in English, but ability to speak the local language when dealing with the company is key.
What are PE working hours like in London when you first join as an Associate?
Also, are European languages a must/very desirable for all PE shops or just MF/UMM?
Many thanks!
It really varies, based on the fund culture, size of deal teams, and how active you are on a deal / what time of year it is for a portfolio companies. My hours are definitely reduced vs. banking, but an average day would still be 10-10 with shorter / longer depending on how busy it is.
European languages are desirable if a team is hiring for specific country coverage as just mentioned, but there are roles across most PE shops (apart from very country focused ones) for both.
Could you maybe talk about
1) your recruiting experience and process - ie HH meetings, interviews with funds (how many, timing, sets of rounds, which HH covers which fund)
2) how you came to choose your fund?
3) if you were running PE interviews what would you ask/look for in a candidate from BB/EB IB?
thanks a lot for doing this we really lack good European content! SB’d
Yup:
1) I started meeting HHs a few years before I moved into private equity - to build relationships at the college level (as many also covered banking too), interviews happen throughout the year as people have positions (and certain funds do their entry level Associate recruiting at particular times every year). For the fund I joined I had a first round senior team coffee, a second round of a test (numerical and modelling), a third round of three senior team interviews, a case study (mock IC), a lunch with a senior team member, meeting with junior team members, and then a final round with one more senior team member
2) It was suggested as a name before I started the formal recruiting process
3) When I interview I typically look for:
- Sound understanding of deals in a concise manner - knowing the key investment thesis, risks/mitigants, due diligence items, value creation levers, quantitative metrics (sources and uses, unit economics, key financials, business plan highlights) - recognising the disclosure limits
- Good commercial judgment - being able to think about the above for a business/potential investment, being able to think commercially (what the operating drivers / unit economics are for different businesses), good technical skills (and LBO understanding)
- A great personality - fun to be around, interesting hobbies outside of work, someone who could get on with and build relationships internally and externally, somebody who focuses on people and understanding them
- Hardworking, entrepreneurial, can think creatively and solve problems
Thanks very much for doing this.
Reg. your point 3. What do you mean by "unit economics" for deals/ case studies and how should I find out about this?
Very helpful thanks a lot!
A big part of investing, as we know, is about controlling emotions/biases. What are your observations on the quality of investment decision making your firm makes? What have you learned in your ~3 years on the buy side about ways to go about that?
I think given the nature of ICs this is sound, with a diversity of view points analysing decisions. I think having a detailed set of materials, with good analytical views (through a human lense) to reveal different views and debate them objectively is key. I also think having a good relationship across the IC is important to be able to have a good quality debate, and have meaningful discussions before IC. There tends to be good ownership of deals across the deal team and broader firm should a deal become executed. Good governance, relationships with management and board structuring is also key pre and post investment to unlock value, so there is a big focus on this in the diligence and post-investment phase.
Thanks for doing this. I have a non-traditional background in that I currently work for a family office sourcing and investing in PE and VC firms as an LP. I do this in the US and internationally and there's some co-investing too. Would LMM or MM PE sometime in the future be completely out of the picture given I'm not coming from banking or consulting?
I think it would be pretty difficult, without experience in direct investing, or moving into banking / consulting first. But not impossible with networking.
Thanks for doing this man. I’m trying to lateral into finance as a 3rd year corporate lawyer (antitrust/competition, focused on merger work). Could I be looking at PE as a way in?
The most common route from this pathway is as an Associate in IBD and then moving into PE.
Thank you, this makes sense. I will be making applications.
Could you please give your perspective on PE recruitment from EB's in the London market? the opinion of many on this forum is that exits are far worse than EB's - is this true, how was your recruitment process impacted and that of your class? Also, if possible could you mention specific EB's that may be better/worse in this regard.
Thank you.
I very much disagree. Private equity recruitment from EBs is equally strong as BBs I found. My class and my process was not impacted, and most ended up in private equity doing LBOs. Wouldn't say any particular EB is worse / better in regard, it's more about your profile within an EB.
Thank you for the insight. All the best.
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