Private equity is a competitive, rigid industry. It is known for being ruthless and unrelenting in its pursuit of investments and potential returns. Consequently, this bleeds down deep into the culture of these private equity firms and will affect your day-to-day considerably. It isn’t a good or bad thing. It is just part of the job, and if you want to be involved in the industry, you need to develop skills and qualifications that position you well to get in the door in the first place but also help you succeed while you are there.
To begin, I think one of the most important qualifications is to have a strong undergraduate degree. While I don’t think it necessarily needs to be an economics or business degree, I would highly encourage you to consider studying something rigid and process-oriented like a STEM subject because you’ll often find the ways you need to think are structured and formulaic, and these disciplines will help orient your mind this way ahead of time. Of course, business degrees are good as well, but I do think unless you are focused on finance, they tend to get a bit too broad and you lose exposure to topics and areas that can help you once you are in private equity. From an educational perspective, try to get a good education in a tangible, ideally STEM-focused field, and do your best to get into the best university possible. Not only will this orient your mindset ahead of time for private equity, but it will also make the eventual recruiting process easier for you as well.
If changing your educational background isn’t an option for you, don’t fret. The next qualification I think is important for private equity is career experience that has adjacencies with the private equity field. Generally, I would focus on investment banking, since it is the traditional career path into private equity; however, I would also consider a career in consulting or trading, as these are two less-trodden paths I have seen be able to make it into private equity.
Once you have these experiences under your belt, it is equivalently as important to understand how to market your experiences in a way that is seen as value-additive and digestible by folks in the private equity world. This means you need to be able to show your interviewer that you are able to think like an investor by considering numerous angles of an investment, whether it be market, industry, or business fundamentals. A key skill both for the interviewing process and the actual job itself is the ability to market yourself, convince others of your qualifications, and substantiate your claims.
Moving onto more tangible examples of skills, I think the fundamental business analysis is the most critical one you need to succeed in private equity. You need to be able to critique a business, understand its merits and downsides, and evaluate whether the positives outweigh the negatives. You need to understand why a business is able to perform better than its peers. You need to be able to peel back the layers of a business and understand why it performs the way it does. This requires an inquisitive mind that is looking for key points of differentiation and understanding where these points of differentiation arise.
To double down on this point, you also need the corresponding ability to look at the fundamental operations of a business and couple them with a financial understanding of that business. What this allows you to do is translate a business’ operations into financial terms for comparative analysis with the rest of the sector or a company’s peers. You will then use this financial understanding of a business to model out your view of the company’s performance over a medium-length time horizon and evaluate whether the purchase of this business is a worthy enough use of your firm’s capital—this requires superior judgment from a financial perspective as well as a business perspective because your choices have an opportunity cost for the fund and a dollar wasted in one invested could’ve been deployed in another to generate a higher IRR.
Finally, one of the most important skills for success in private equity is curiosity. I cannot tell you how many people enter this industry expecting to be processors. At the end of the day, the nature of private equity is to seek out new opportunities, understand the latest market trends, and based on those characteristics, find relevant investment targets that fit your fund’s criteria. Being curious helps you be a great member of the team by letting you stay ahead of the curve on potential opportunities, keeping you intrinsically motivated (which should be why you chose this career in the first place), and letting you find other opportunities while your counterparts are simply “doing the job”.
At the end of the day, curiosity fuels your learning of your industry and the deals within that space. It will drive you to understand complex financial concepts and enable you to think differently from the rest of the market, which can make or break a deal later down the line. By remaining curious, you are able to take in different sources of information and apply them to your investment thought process as well as your portfolio company management. This can help you stand out versus other members of your firm and industry who are merely acting as processors and are putting less individual judgment into a deal.
Private equity and financial services in general have a way of tiring a lot of workers out. There is a lot of extra work that tends to come with the role, and if you don’t choose to come into private equity with a growth mindset—one that is naturally curious about the subject matter—it is going to be quite difficult to compete with other folks who are motivated beyond simply a salary. At the end of the day, there are only a few spots to become a partner and truly become the engine behind a fund, and to best position yourself for those opportunities, you need to take a rigid approach to your qualifications and a holistic approach to your skill set in order to truly succeed in private equity.
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