What skill set would be the most applicable to Private Equity?
I have been offered an internship at a commercial real estate firm. They have a large office in my city and I've been told I can intern where I want. My end goal is PE and I'm in my first year of university and want to do something most applicable to PE. Some of their services are:
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Advisory and Valuation
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Corporate Finance
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Strategic Consulting
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Research
Which department should I intern in with the hope of PE?
It doesn't really matter if you're a first year in college. If you really want to do PE just make sure you're building towards an Investment Banking internship after your Junior year(and maybe even after sophomore).
Thanks for the swift response. Is it hard to make the jump from consultancy to PE? In Australia It is mostly a 50/50 split between IB and Consultancy/Big 4 accounting. Less people jump to the buyside after IB and tend to either stay in IB or completely leave high finance. I'm not sure yet if IB is going to be the main priority. Did you go into IB before going into PE, what did you make of the transition?
Can only speak to the U.S., but if you know the end goal is PE, and are trying to maximize your chances of getting there, the best way to do so is through IB right out of college. It is possible to get into PE from consulting, but IB is far and away the best bet. However, we are talking about IB full time. Any finance role you get at this point won’t make the “jump” to PE any more difficult. This role would have you on the right path to maximizing your chances. The best way to get into IB right out of college is getting an internship at an IB the summer between your third and fourth year of college (recruiting takes place during the first semester of your third year). For the first year of college, any role in finance is sufficient, and many if not most people who do get into IB didn’t even work in finance during that summer. Your goal needs to be to do an excellent job in this role first and foremost, and then spin the experience to talk about how it helped you build x and y skills but was lacking in abc, with abc being something that ultimately leads you to have an interest in banking.
Given that you listed 'strategic consulting' twice in three bullet points, I'd say you focus on something else.
Dodgy copy and paste and deleting all the other services that aren't relevant at all to PE. My bad, I fucked up. Thanks for the comment, I'll focus more
You could easily leverage this internship into an IB internship next year with a real estate & lodging group.
Real estate is pretty neat. If you’ve ever had appreciation for architecture and your physical surroundings, it could be a rewarding path.
Real estate private equity is huge and some of the returns realized by successful funds and developers are mind boggling. Do some research on some of the larger players and see if it’s something you would be into.
Thanks for the response man. Always nice to hear some encouragement with nice words. I'll keep an eye on PE RE, only concern is I don't want to get stuck into RE and not be able to make the jump. Sometimes I need to remember I'm only 18 and I should try and take it slow.
Don't know if I agree with the last sentence. There are a lot of 18-year-olds who aren't taking it slow, and they'll likely be your competition. I'd say don't go crazy, but don't go slow either. Just something to think about.
Top 5 most applicable banking skills to PE? (Originally Posted: 08/28/2013)
What specific skillset does one acquire in banking that is necessary for or applicable to working in PE? What are the most important skills?
It it an understanding of the documents in the deal process? Understanding covenants and ways of structuring the financing? Simply being smart and understanding how finance works?
Are lbo models and operating models the only things that matter? Maybe Merger models if you're doing rollups? From talking to people in PE, it sounds like they don't really do DCFs or Merger Models or Comps.
It doesn't seem that hard to do an lbo model or a merger model or a DCF. Once you have built a few, isn't it normally just a cookbook assignment? ("...now link in the interest expense and income to the income statement. Now bring over the cash balance from the CFS...now unlever the beta. now blah blah...") Would I be wrong in saying that, once you have the generic mechanical skills of modeling down, the hard part seems to be in getting the assumptions right? Even then, am I wrong to say that most modeling in banking is fairly mechanical, with assumptions pulled from research reports or taken from the company/sponsor or simply guessed at ("we'll say that it's kept constant for these years because I don't want to put too much thought into it"). So then what do you really learn in banking that you couldn't learn in a Training the Street class?
To the PE folks out there, what are the 5 skills that you think are the most transferrable from banking?
Please tell me anything I've said that is incorrect because some of this is simply my impressions from my limited experience in the industry so far so I might not be fully accurate. Thank you!
Tough question and obviously depends on your seniority but I would pick the following at the moment:
Commercial judgement (both in terms of sense-checking your analysis, having an intuition what the numbers will probably looks like and also when you start participating in the deal negotiation process) - you generally develop this after 2-3 years in banking, especially once you start working with (junior) Analysts to allow you some time to think more about what you're doing
Financial modelling (most important as a junior but also still important as a senior)
Structured due diligence (primarily commercial and financial but also knowing how the legal, environmental, tax workstreams run - includes being able to organise / co-ordinate these workstreams and summarise the massive reports you will get from the various advisers)
Communication and presentation skills (includes speaking with the target management to understand the business and allow you to efficiently run your due diligence process but also communicate your thesis in a concise and structured manner within the PE firm / IC)
Research skills (to screen sectors and understand broader industry trends / develop a sector thesis - e.g. is steel a good investment opportunity at the moment?)
I surprised myself by not putting team-player anywhere on the list but PE work is actually relatively solitary in my opinion - at least compared to IBD.
Very accurate, good post.
I was hoping nycbandar posted in here and I could completely deconstruct his nonsensical logic and false information, but I'd say this pretty much sums it up... don't think there is much to add here.
The hard part is seeing the whole picture and being able to make a coherent argument for why a company is a good or bad investment. You can do this without ever opening excel.
I think you will actually see this with a lot of the more senior people in PE. They look at a business and can tell you right away whether this is a good investment or not, regardless of an LBO model, and who may actually buy it from them 5 years down the line.
Alpine covered it pretty well. I have only been in the business around a year, however it's a really small shop so I have a lot of exposure to every aspect of the deals we work on. Since I am the only non-senior person here, I kinda have to help do everything.
I was never in banking and came straight into PE out of college, so I am not sure I am the best person to answer this question. I do, however, work with a lot of ibankers when we are in the process of consummating a transaction. Instead of answering your question regarding the best transferable skills, here are a few of the important skills you will definitely need:
1) Understanding Basic Accounting and How to Model - This is something that is very important during the preliminary process of a deal. I am at the point now where I can build out a very detailed 10-15 page LBO model in 30 minutes (Granted I have a very good template - so good in fact that friends at other buyout shops have seen it and asked for soft copies...to which I reply by telling them to suck it...jk). Knowing what's driving everything is critical, and your ability to look at a model and determine the best way to structure a transaction is of the utmost importance. Of course, your superiors will end up tweaking the assumptions and structure, but getting it close and coming up with suggestions is always preferable. During my first deal, I remember being terrified after we sent out a preliminary model to our potential senior and mezz lenders that I built. Now it's like second nature.
2) Presentations, Memos, and Various Analysis - This is right up there with modeling. Lots of times we get OMs from ibanks that are just simply not detailed enough. Actually, it happens 100% of the time. Usually I take a lot of the info from the bank OM and create our own presentation or internal OM that is 100x more detailed if we decide to move forward and sign an LOI. I will also do various types of analysis on customers, products, working capital, etc. that go into our internal report. You need to be able to do this perfectly.
3) Communication & Likability - You need to be able to talk to people and show well. I'm not going to lie, but being dressed well, confident, and in-shape goes a long way. If you are all those things, likable/modest, and are able to easily talk to new people you'll be set. You could be the smartest analyst in the world, but if you don't have basic people skills then you won't last long. Showing well is extremely important (board meetings, dinners, presentations, parties, etc.)
4) General Creativity, Good Judgment, & Love of The Game - If you like the business and are always trying to learn more and come up with new ways and ideas to do things, you should do well. I came into this business because of it's variability. Every deal is different and you learn something new every day. I tried to start companies during college over and over again and failed every time I came up with something new because I just didn't know jack shit about the business world. Private equity was the perfect outlet for me. It has allowed me to see how many different industries are intertwined and what it really takes to bring a product to the market. Every day is different. After screening deals over and over again for months on end, you should be able to tell within 5 minutes if the company is going to be one to pursue or not.
5) Working Hard & Being Proactive - This is one that is definitely transferable from banking lol. While the hours here are definitely better than at ibanks, we still work our asses off when shit needs to get done. If your superior says that the model and preliminary proposal needs to be done by the morning and waits until 9 PM to tell you everything is fucked up and has to be changed, then you have to get that shit done. I've spend many nights at the office and during a deal often work 100 hours a week. You have to be willing to do this as an analyst. I often see a lot of people talk about how the hours in PE are better than banking. At higher levels, I'm sure they are. But as an analyst I am working just as much. You should also be doing things without be asked. If you think something looks like shit or needs to be looked at another way, do it. Your superiors will respect you for it and your input is important, whether they agree or disagree. My pro-activity has allowed me to be present in just about every aspect of the deal process, from proposal to closing. If your superiors see how much you like what you do and have the hunger to constantly learn, you might get lucky and they'll start taking you everywhere with them.
There are tons of others I can add but I have already written far too long of a post (slow morning). Those are just a few of the ones I was able to think of sitting here. One of the ones I hate but you'll definitely need to learn to do well is reading and understanding 5 million page legal documents. Reading those pieces of shit is a bitch and takes forever. I hate it so much. SO much.
modelling skills PE (Originally Posted: 09/11/2007)
Hi, I'm really struggling to find the answer to this question so I'd be very grateful if you can help me with it. Many thanks in advance for any opinion.
How do the modelling skills obtained via secondary private equity analysis relates to other jobs like investment banking M&A or direct PE or HF investments?
I was told during an interview that I'll learn skills like DCF analyses, comparable company analyses, and valuations (EBITDA, multiple calculations). I'm trying to establish whether these are transferable skills to IB (M&A) or PE/HF.
Yes, those skills are transferable.
I have only been an analyst for about a year now in pe. but all of those are pretty important to private equity. I have not yet needed to do a DCF, I did one and they laughed at me for using "to complex of a model" but the IB guys that pitch us always include one in their pitch books.
A "standard" LBO model really isn't that different than a DCF - the only material difference is that you're effectively solving for an equity discount rate as opposed to solving for a present value.
All of the modeling that you are expected to do in PE is fairly straight-forward assuming you understand the relationships between the financial statements. When I first started in my position I had no finance background and was forced to learn the relationships through trial and error, which was extremely arduous and frustrating. Good luck.
Industry Insight vs. Modeling Skills - more important for PE? (Originally Posted: 01/26/2010)
Talked to 2 bankers at MS - one was in a strong industry coverage group and the other was in M&A.
The guy in the industry group said that PE shops value the ability to think critically about an industry - i.e. they look for people who have their own views on the verticals in the industry, knowledge of who the key players are and why they are that way, what the drivers of the market are, what the trends and competitive dynamics are, why EV/EBITDA - Capex may be a better multiple than EV/EBITDA, etc. In short, he emphasized the importance of industry intuition and the capacity to develop well thoughtout investment theses over hard modeling skills. The ability to identify value can't be taught, while modeling can - that was his message.
The M&A guy said the opposite. Learning an industry is relatively easy, while modeling complicated transaction structures from scratch is much more difficult. He said PE shops don't care about industry knowledge at the junior level bc pre-mba associates are hired to model, not to add value through industry insight. That's taken care of at the senior level.
Yes, obviously it's best to have both modeling and industry insight - but which is more important? And yes, I realize that this also depends on which PE shop you're recruiting with, but I'm looking for an answer that could apply to both megafunds and MM shops.
It does depend on the shop you're looking at. However, here's what I would say generally:
You have to be able to model well enough for the firm to "check the box." You won't have any ridiculously complicated models. You simply have to show that you understand how to build a fully integrated operating model.
The case questions / industry questions have a sliding scale - you can totally miss the point, nail it, or do anywhere between.
Assuming you have the modeling skills down, you should really focus on the industry questions. For the most competitive positions, you will have to nail these.
Also, many prestigious shops don't bother with the modeling questions - any idiot can learn how to model, but it takes some brains to think about businesses, especially in complex or unfamiliar industrees.
Sophomore at boutique PE firm- what would I be expected to know? (Originally Posted: 02/20/2011)
Going for an interview at a small PE firm (think 5mm to 30mm deals) and was wondering what I'd be expected to know. I've been through the valuation modules on BIWS and have read the WSO technical guide, but would they expect me to know how to build an lbo model from scratch? The interviewer I spoke to said the job would involve a lot of "due diligence."
If it helps, it's an unpaid gig.
No, probably not. They pay their associates/analysts 100,000s of dollars to do that. Due diligence is code for grunt work - think researching companies, industries, past deals. The internship is unpaid meaning you are there to learn, observe, and be as helpful as possible without getting in the way. Also you get a nice name to put on your resume in addition to Private Equity Intern Analyst.
Have fun and enjoy the experience but don't go in thinking you will be building models from scratch and showing the high up guys there how its done. In my experience the guys will probably send you some of their models to look over so you can understand how they went about creating them.
Not likely
Can I be honest, and its different than anything here. If you really want to maximize your impact, know so much PE that they feel youre more associate than intern.
Several people will say just do your thing, they won't expect you, blah. Learn as much as you can between now and the interview. Be able to have a position or analysis on a thing if they happen to ask. That's you make a great impresssion.
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