Private Equity Overview

Patrick Curtis

Reviewed by

Patrick Curtis

Expertise: Private Equity | Investment Banking


November 1, 2017

Return to Main FAQ Page

Private Equity is one of the most vaunted types of work in finance and private equity interviews are notoriously challenging. The typical route into private equity is after having spent 2 years at a top investment bank and / or completing an MBA at a top business school. For an excellent insight into the Private Equity world, read “Barbarians at the Gate” which details the LBO of R.J.R. Nabisco by KKR in the 1980s.

What Is Private Equity?

Private Equity is not very well known outside of the finance world, but it is one of the key players in global business. Private Equity firms are part of the fabled ‘buy-side’ and some of the largest firms (megafunds) are:

The definition of private equity is simply money invested into a private company, or the privatization of a company through the investment of outside money. Basically, what private equity firms attempt to do is to invest into a company, take a majority stake, improve the company and then exit their investment at a large profit. In order to magnify returns, PE firms make use of leverage (borrowed money) to conduct Leveraged Buyouts (LBOs).

Private Equity firms can either focus on a specific sector (Energy, Technology, Healthcare etc.) or operate across a broad spectrum. The larger the firm, the more likely it is to cover more sectors.

How Do Private Equity Firms Work?

PE firms will typically acquire 100% of the target company and make use of a combination of cash and debt to finance the acquisition. The advantage of using debt is that the firm has to invest less of its own cash, and therefore the return on equity is higher and they can undertake bigger / more investments. When the target company is acquired, the future cash flows are used to pay off the debt used. If the PE firm in question is using leverage, they will require a financial sponsor (typically a bank) to loan them the money.

The aim of the investment by the PE firm is to take a business, increase its value and then sell it’s share in the business. Typically, PE firms will target 20% return per year. The way the firm will improve the business can be anything from replacing the management, reducing costs, improving efficiency or many other possible actions. Private Equity investments are usually not that risky (at least compared to VC) because the target firm is usually quite large and is unlikely to collapse in value.

What Do You Do In Private Equity

As a junior employee in PE, your work is actually quite similar to that of investment banking, but the hours are (usually) less and the pay is (usually) more. The work will involve valuing companies, modeling for mergers / LBOs, conducting DCF analysis etc.

Return to the Finance Dictionary

Read Forum Topics About Private Equity

Patrick Curtis is a member of WSO Editorial Board which helps ensure the accuracy of content across top articles on Wall Street Oasis. Prior to becoming our CEO & Founder at Wall Street Oasis, Patrick spent three years as a Private Equity... This content was originally created by member and has evolved with the help of our mentors.

Total Avg Compensation

December 2023 Investment Banking

  • Director/MD (6) $592
  • Vice President (34) $390
  • Associates (167) $258
  • 3rd+ Year Analyst (15) $187
  • 2nd Year Analyst (106) $168
  • Intern/Summer Associate (48) $167
  • 1st Year Analyst (322) $166
  • Intern/Summer Analyst (234) $95


redever's picture
Betsy Massar's picture
Betsy Massar
Secyh62's picture
BankonBanking's picture
dosk17's picture
GameTheory's picture
CompBanker's picture
kanon's picture
Linda Abraham's picture
Linda Abraham
pudding's picture