Private equity refers to money for investments that are made directly in private companies or public companies that later become private. Private equity involves funds and investors that invest in private companies to meet business needs.
The secret to success – how do they work?
When substantial funding is received the private equity firm generally compensates as mentioned below:
- It acquires a sizeable minority interest in the company that has received the fund (enough to provide the private equity firm with managerial control over the company). It then uses the control to direct the growth of the company that increases the returns on the firm’s investment.
- It receives a fair amount of management fee from the company that receives the financing. For example, 2% of the total financing provided is received annually for management.
- For every capital fund, the firm manages, a share of yearly profits and a substantial share of the profits (20-25%) is received when any company the fund has invested in is sold or taken public through the initial public offering.
- The time duration generally takes place between four to seven years, which means the private equity firm is expected to be able to sell the company with maximum return interest.
Working in a private equity firm
Private equity jobs generally manage to attract top talent, especially in the financial services sector. There are many job roles in a private equity firm, and all these require an expert professional to fill in the positions.
These firms normally have smaller teams than investment banks. But like investment banks, these firms have a clear staffing structure between the junior and the senior management. The senior management such as fund managers is also responsible for making investment decisions. On the other hand, the junior management does all the less glamorous task of researching companies, report writing and preparing prospectus etc. The team is smaller, which is why the interaction between the junior and the senior management occurs frequently.
Since private equity firms expect to hire top cream candidates, the salary packages that they are being offered are one of the best in the industry. Private equity firms come under one of the highest paying employers in the financial world.
To build a successful career in private equity, you need to first have strong business analytical skills. Fund managers who have chosen private equity investments are said to be highly skilled, both technically and intuitively.
Private equity jobs are tough to catch hold of if you don’t have the prerequisite skills. Professionals must be highly knowledgeable in skills such as financial modeling, LBO modeling, M&A modeling, and general financial analysis etc.
These equity funds are set up to a limited partnership by a private equity firm. This firm then reaches out to investors such as charities, union pension plans, insurance companies, universities endowment and at times they also reach out to wealthy individuals to raise an extensive amount of capital. Once the capital is invested, the limited partners capital is then locked up for a certain number of years before the fund is liquidated and the principle is then later returned to the shareholders along with the profits.
Looking for private equity jobs? Now’s your best chance to get hired by top companies such as Goldman Sachs, Center Gate, Blackstone, and Highland.