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Challenges And Opportunities In A Private Equity Career

Private Equity


Private equity is a fast-paced, stimulating, and rewarding career path. However, the journey from entry-level associate to partner sitting on the investment committee is long and winding. On this road, there are many opportunities and challenges that a new private equity investor should be attuned to. Having a keen sense of what to expect will allow you to best position yourself for recruiting and, more importantly, for succeeding in your role once on the job.


One of the most exciting opportunities in private equity is to observe and participate in high-level, consequential meetings. This can take a variety of formats but might include anything from internal investment deliberations to board meetings at your portfolio companies. Regardless of the setting, these situations present a unique opportunity to watch how experienced investors and operators think about and manage complex business decisions. You have two options as a junior professional: one, go through the motions and take notes, not truly processing what is going on; or two, engage in these discussions (to the extent possible) and absorb as much as possible to put yourself in position to one day become a key decision maker. Pattern recognition is a key skill in developing as an investor, and making sure you seize every opportunity to take part in these types of discussions is key to growing that competency.


Another key opportunity as a private equity investor is the ability to develop your network and gain exposure to all parts of the private equity ecosystem. This includes the professionals within your own firm as well as third-party advisors such as bankers, lawyers, accountants, consultants, tax professionals, etc. Developing strong relationships with these groups based on mutual respect is a key opportunity for a private equity investor. Over time, these relationships pay tangible dividends in the form of new transaction opportunities, helpful advice, and general market intel. If you can become someone within your firm who develops a reputation for having strong relationships with key service providers, you will increase your value to the organization (and this will also serve you well if you ever join another firm or hope to one day start your own). One key thing to note is that developing these relationships takes time and relies on things that happen in the everyday course of business. This includes working on transactions together, as well as those “softer” aspects, like a law firm’s “optional” happy hour that you can choose to forgo at the risk of missing a key relationship development opportunity.


Of course, there are also financial opportunities that play a key role in your private equity career. One that stands out to many new private equity professionals is the opportunity to invest in the deals you work on (note: at many firms, this is a requirement rather than an optional opportunity). However, this perk is a valuable opportunity that you should seize. Investing on a no-fee, no-carry basis in your fund’s deals is an outstanding way to begin a long-term wealth creation strategy. Some firms offer additional opportunities above and beyond investing in your own deals. This may include the opportunity to co-invest in the firm’s deals on which you did not personally work on, as well as the opportunity to invest in the firm’s fund (either the fund you work for or, in the case of larger multi-strategy firms, potentially in funds outside of your core focus area). Some funds will even arrange for subsidized leverage facilities, which means that they’ll offer you debt at below-market interest rates, to finance your investment in the firm’s deals. Taken together, these opportunities can collectively add substantial economic value to your nominal compensation figure.


These valuable opportunities do not come without their fair share of challenges as well. The first challenge relates to the organizational structure of most private equity firms. Relative to the investment banking role from which you are likely coming, private equity firms operate with small staffs and thus leaner deal teams. This means that there will not be an associate to check your work, and you will have to be prepared to walk senior-level professionals through any analysis you do. Not only will your numbers have to be right, but you will also have to be prepared for a thorough “grilling” on all of your assumptions and likely be asked many questions that had not yet crossed your mind. For this challenge, you must hold yourself to a higher standard and double- and triple-check your work before it is put in front of senior investors as the basis on which to make an investment. That said, it is also an opportunity to improve your work product, practice presenting to high-level investors, and make a name for yourself as someone who can produce high-quality work.


Another challenge in your private equity role is the number of hats you are expected to wear. You will of course be responsible for number-crunching and quantitative analysis, but you will also be expected to liaise with key third-party partners (as mentioned above) and incorporate their feedback into your team’s integrated investment process.


Finally, it is important to be attuned to one of the most important challenges in private equity: maintaining a sustainable work-life balance. Private equity is a transaction-based industry, and this often necessitates time periods of intense work: getting an IC memo done so that you’re able to submit a bid before a deadline, working around the clock to close the sale of a portfolio company, etc. In any event, the time demands can be grueling, and it is not unheard of for private equity hours to be as bad as, or worse than those in investment banking (this is exacerbated by the lean deal teams mentioned above). To succeed in private equity, it is important that you find a way to balance the demanding nature of the job with other things you have going on in life. This can be your hobbies, personal or romantic relationships, or just some time alone to decompress. Those who let their work consume them often see productivity drop in the workplace, which negatively impacts their careers.


As you can see, private equity is a career filled with meaningful opportunities and difficult challenges. How you handle these situations will shape the trajectory of your life and your career, and how you do so is up to you.


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