Private Equity (PE) is one of the most prestigious jobs at Wall Street. Private Equity Associate and Analyst are the two most common entry points. Therefore, here we will deep dive into the job responsibility of those two positions, career path, salary and how to get into Private Equity via those two entry points.
1. Definition of Private Equity
Private equity is an entity raising capital from outside investors, buying companies, and then selling them to make a return on investment. Private Equity firms work hard to operate and improve companies in the portfolio to increase the value of that organization before selling out.
1.1 How does a Private Equity firm Work?
Limited partners (LP) are institutional funds – such as pension funds, endowment funds, insurance companies, etc – and high net-worth individuals that committed capital to that VC.
General Partner is the one who raises funds for the firm, decides when and which companies to invest in, and chooses when to exit the investment.
Private Equity firm will operate everything to select investing targets, protect and grow the investment
Investment portfolio is the list of companies or start-ups that the fund is putting capital into.
But how do they make money?
PE often charges management fees of about 2% of the fund. This fee will be used to pay for operating activities in the firm.
After an investment is liquidated, around 20% of the return will become carried interest. Most of them will go to the General Partners. The rest will be shared among Junior Partners, Principals/VP and Post-MBA associates.
80% of the return will be shared among Limited Partners according to their contributions.
Those are just a short introduction about Carried Interest, please visit our articles about Private Equity Salary and Bonus, in which we explain in detail with a clear example how Carried Interest is calculated and divided between LPs and GP.
1.2 Type of Private Equity funds
If we consider the firm AUM (Asset Under Management), there are 2 different firm types in Private Equity:
- Mega funds (MF): manage a fund valued above $5Bn. Some household brands are Blackstones, Apollo, Warburg Pincus, etc
- Middle Market (MM): other funds. Sometimes, MM can be splitted into Upper Middle Market (UMM) and Lower Middle Market (LMM). There is no clear definition between both.
There are several fund types in Private Equity, and each firm type will make investing decisions depending on the state of the companies.
– Distressed funding: This type of fund invests in underperforming companies to change the management and operations, or to make a sale of their assets for a profit. Assets can be physical machinery, real estate, or intellectual property, such as patents. After the 2008 financial crisis, there was an increase in distressed funding by private equity firms.
– Leveraged Buyouts: This is the most popular type of private equity funds. The funds focus on buying out a company with the intention of improving its financial health and business operation. After a few years, they resell it to realize a return on investment from an interested party. The funds often target the growing company rather than the start-up company.
– Real Estate Private Equity (or REPE): raises capital from Limited Partners and then uses this capital to buy properties, develop, and then sell them to earn the profit. The firms focus on commercial real estate like offices, retail, multi-family properties, hotels, rather than residential real estate.
– Fund of funds: This type of funding focuses on investing in other funds such as mutual funds and hedge funds. They offer a backdoor entry to an investor who cannot afford minimum capital requirements in such funds. The management fees in this type of funds is higher because they are rolled up from multiple funds and the fact that unfettered diversification is not sustainable in terms of returns.
– Venture Capital: Venture capital funding focuses on investing the capital to the startup and the small-sized enterprises, especially tech-companies. The capital usually comes from wealthy investors, investment banks, and any other financial institutions. Since the invested companies are new, the chance to receive the investment returns is low for the investors. However, if the companies are successful, the tradeoff is potentially above-average returns.
1.3 Top global Private Equity firms
Top Private Equity firms globally can be found via PEI300 Database. Among all of them, the most prominent brand names are Blackstone, The Carlyle Group, KKR, TPG and Warburg Pincus
2. Private Equity Associate and Analyst: Jobs, Salary and Bonus
2.1 Career path
In a PE firm, Analyst and Associates are the two main entry points. An associate can be promoted to Senior Associate after 2-3 years if that person owns an outstanding performance. Another way is to attend a prestigious MBA program, then come back to PE.
Analyst is the entrance position to Private Equity. Nowaday, Private Equity firms sometimes hire Analysts straight out of college with some roles but it is not the common pathway. Those bright candidates often got a Private Equity Internship before to land a job there right after college.
- Prepare and join the conference calls.
- Collect and review data/legal documents.
- Create materials to support the Associate and Vice President.
- Build the initial financial models and get feedback from the Associate.
- Monitoring portfolio companies.
- Cold calling to source new deals.
- Conduct due diligence for potential investment.
Here are Mega Funds or Upper Middle Market PE firms that organize Full-time Analyst program
Mega Funds (A-Z order):
- Bain Capital
- KKR (Kohlberg Kravis Roberts)
- Silver Lake
- Warburg Pincus
Upper Middle Market funds and other funds that organize Analyst program:
- Crestview Partners
- LLR Partners
- Parthenon Capital
- Stone Point
- Vector Capital
List of funds stopped Analyst program:
- TPG (Texas Pacific Group)
- LGP (Leonard Green & Partners)
- GTCR: Do not hire full-time Analysts directly but hire interns and convert to full-time Analysts
- Audax Group: Do not hire full-time Analysts directly but hire interns and convert to full-time Analysts
The Associate will be involved in the “deal” work and lead the process from start to finish. They also handle some “non-deal” work including managing companies’ portfolios, screening for investment opportunities, and supporting the management team. Normally the involvement of an Associate in managing portfolio is less than a Senior Associate
A majority of Pre-MBA associates (especially in the US) are hired for a two-year to three-year program. At the completion of the program, associates are typically expected to attend a top-tier MBA program.
A typical day of an Associate:
- Join the meeting with their boss or other team members to discuss active deals and potential deals.
- Build a financial model for an active deal or review and adjust an existing one.
- Conduct a conference call with the owners of a private company that has the potential to sell to your firm to get a new deal.
- Review customer contracts in the database to reraise the new deal.
- Monitor the company’s portfolio and keep the financial reports up-to-date.
- Follow up with the fundraising process and setting up webinars with “potential Funders”.
- Conduct another call with different advisers or management consultants who are involved in the deal from earlier in the day to define strategy.
- Finish some administrative work such as editing NDAs or conducting market research.
Before we move to the next two levels: Vice President/Principal and Managing Director/Partner, we would like to compare between Analyst and Associate.
Comparison between Analyst and Associate:
The Job Descriptions of Analyst and Associate have several similar aspects such as dealing, reviewing potential investments and reviewing contracts, monitoring companies’ portfolios, and assisting with fundraising activities. They also work on financial modeling, coordinating the due diligence process including work with lawyers, auditors, and the other parties to get the insights.
The exact differences between Private Equity Associates and Analysts heavily depends on the firm size. In some small PE firms with a flat organization structure, Associates and Analysts could perform the same jobs. However, in Upper Middle Market and Mega funds, Associates and Analysts will perform different scope of work.
|Category||Private Equity Associate||Private Equity Analyst|
In overall, Associate will lead different workstreams: from running financial models, due diligence, sourcing new deals, monitoring performance, to looking for exit options. Associate will delegate work to Analysts and supervise the output.
Besides that, Associates also assist Partners/Principals in fundraising activities if asked.
24 – 28
22 – 25
|Education||Pre-MBA with 2-3 years experience in IB or as an PE Analyst||Underground|
2.1.3 Vice President/Principal
Vice presidents and principals manage the deal teams, cultivate and maintain relationships with investment bankers, consultants, potential companies and clients to generate investment opportunities and acquisition ideas. They also work with the senior partners of the fund on strategy and negotiations. Depending on the size of the fund, the salary of vice president/principal can be different. At this level, they also receive the carried interest which makes their salary higher.
2.1.4 Managing Director/Partner
Managing directors and partners are the final decision makers in the Private Equity fund. They receive significant compensation, especially the carried interest in the fund. The managing director and partner directly manage the company’s portfolio and the target companies to make sure the investment is lucrative.
2.2. Salary and Bonus
2.2.1. Salary structure
While the LPs earn most of the profit from the investment return, the GPs – the firm itself – gain by charging LPs the management fees, which is around 2% of the fund value. For example: if a firm raises $1bil, they will charge $20mil per annum as the management fee. The fee is used for covering the operating costs, including staffs’ salary, within the funds.
|North America||Salary||Bonus||Total (*)||Salary||Bonus||Total (*)|
Source: Heidrick & Struggles 2019 survey
Note: (*) Because firms can offer high salary but low bonus or vice versa, Total salary and bonus is taken from the survey, not by adding salary and bonus together
(**) High salary and bonus here mean this is the highest response available in the survey.
Due to small sample size, Analysts are not included in the survey. Normally, an Analyst will receive total package from $100K – $150K per annum.
2.2 Compensation structure
In private equity, the employees’ salaries are heavily weighted toward the bonus portion. The base salary is covered by the management fees or the deal fee, while the bonus comes from the investment return. In the investment returns, there are 3 components: individual/fund performance, co-investment, and carried interests.
This type of bonus is covered by the management fee and it depends on individual, team, and fund performance. Typically, the split between base salaries and bonuses for junior members is around 50/50. However, according to a recent research of Heidrick & Struggles, the weight between bonus and salary in big firms is consistently higher than that of smaller firms. The higher level you are in Private Equity, the more bonus you earn.
When you reach the Associates level, some firms allow you to put your own money into specific deals. At this time, you can use your personal fund to invest in any project, and you will gain the benefits if it performs well.
Carry or Carried Interest
Carried interest is mostly available to VPs, Principals, and Partners/MDs. If you are not senior, you cannot see most of that carried interest. The Partners of the firm receive most of the carried interest pool because they contribute most of the initial investment. This type of interest is defined based on the percentage of the total pool for each fund, and it vests over several years (often 5 years or sometimes up to 10 years).
Normally, carried interest represents a share of investment return paid to General partners (GP) in excess of the amount he or she contributed to the fund. Carried interest acts as a performance fee, meaning that the firm only receives carry if the investment’s IRR is higher than a committed return rate called hurdle rate. As carried interest is pretty complicated, we dedicate one whole session to talk about it.
If you are so interested in Carried Interest Mechanist, you can read more on our Private Equity Salary and Bonus with a detailed example.
3. How to Get into Private Equity?
3.1 Typical roadmap in Private Equity:
For an overview of chance to get into Private Equity across career path and background, please visit our Wall Street Career Planning tool
3.1.1 Investment Banking to Private Equity
This is the most common track to enter Private Equity.
We will provide more insights about this path in section 3.2: Recruiting process. In brief, you can move from Investment Bank to Private Equity via PE on-cycle and off-cycle recruitment.
On-cycle recruitment is organized by those Mega funds to target Bulge Brackets/Elite Boutique Banks Analysts. It often happens from August to October every year, within a few months of IB Analysts’ start date. However, each firm’s process, from submitting a resume to receiving offers, lasts only 1-1.5 months.
Off-cycle recruitment is organized by Middle Market funds and will be kicked off after the on-cycle one. The off-cycle season often runs from December to February and each firm’s process is also longer than that of on-cycle recruitment. Private Equity firms can also recruit other vacancies during off-cycle and those are need-based positions.
In big funds, there are Associates and Senior Associates levels. Both On-cycle and Off-cycle recruitment are only for Associate vacancies and there is a different timeline for Post-MBA Associate. Although it is possible for a 2-3 years experienced Associate to be promoted to Senior Associate, it is pretty challenging if you don’t have an MBA degree.
Similar to Analyst vs Associate, the difference between Associate and Senior Associate varies by firm size.
|Position||Private Equity Associate||Private Equity Senior Associate|
|Responsibility||Although Associates also deal with external parties, they focus more on deal sourcing, conducting due diligence, and running financial models. Associates can assist monitoring portfolio companies, fundraising and looking for exit options.|
Senior Associates act more like the firm representatives in front of companies that look for investment. They also involve more in portfolio company’s operation.
|Age||24 – 28||26 – 32|
|Education||Pre-MBA||Post – MBA|
|Working Hour||60 – 70 hours||60 – 70 hours|
|Salary & Bonus||$150K – $300K||$250K – $400K|
3.1.2 Private Equity Internship to Analyst
Recently, this track has become more popular with some Mega funds recruiting fresh graduates for Analyst positions. These tier 1 summer analyst internships at Mega-funds are limited and very competitive. Similar to Bulge Bracket internship application, you need to be a “superstar” with a stand-out resume (even target school might not make the cut here), relevant experience, ideally at boutique investment banks & small private equity funds , and super-smart networking to get into those limited internship interview slots.
We put down the approximate timeline of all Summer Analyst programs, Full Time Analyst programs in the “Recruiting process” so that you can plan ahead your career.
3.2 Recruiting process
There are 2 types of recruiting processes: The on-cycle process and Off-cycle process. We layout the timeline of those two processes below, from networking to on-boarding period, for your reference.
HH = Headhunters
Upon completing the SA 2020 internship recruitment process, qualified interns will receive full-time offers starting working in summer 2022.
Private Equity firms Analysts are recruited from 2 sources: (1) current interns who performed well in their summer internships and (2) fresh graduates who apply via Full-time Analyst program.
About the Summer Internship program for MBA students, this is the timeline for the 15-month or 18 month MBA program. For 1-year MBA programs, either the timeline is the same or recruitment happens in Jan-Feb and the internship starts in Jun – Jul same year.
We understand that the table contains a lot of information, which can be too overwhelming for any newcomers. Hence, here is an example of the Associate On-cycle recruitment from this timeline:
Headhunters start approaching IB Analysts around July – August 2020, then the whole interview process will run from August to October 2020 across firms. Successful candidates will receive the offer. However, those candidates only start their jobs around August – September 2022. This process will be replicated every year, meaning that if you got a PE Associate offer in 2021, you will start your job in 2023.
3.2.1 On-cycle recruitment process:
The on-cycle process mostly targets Analysts at Bulge Bracket and Elite Boutique Banks for Associate positions at Mega-funds and Upper Middle Market funds. However, as the industry keeps growing, PE firms now also organize on cycle recruitment for Summer Analyst Program (i.e: internship) and Full-time Analyst Program.
For Associate positions, the process can start as early as July to October, only a couple of months after Analysts at Bulge Bracket or Elite Boutique Banks start their jobs. If you finish the process and you get the job offer, you can only start in the next 1.5 – 2 years. For example, if you get the offer in 2021, you will only start your PE career in 2023.
The headhunters have more power on the Associate On-cycle recruitment process compared to Off-cycle. After getting your CVs, the headhunters will contact you and set up a telephone interview. Some common questions in this interview could be: “Walk me through your resume?”, “Why Private Equity?”, “Why this firm?”, etc. If you can impress the headhunter, they will pass your CV to the firms. Hence, headhunters decide whether you can go to the next round. You would better show up well prepared and win them in the telephone interview.
The PE firm will invite you to “a weekend event”, in which the most nightmare part of On-cycle recruitment happens. You will have four to five 30-minute interview sessions with people across levels in that firm. If you can pass, the firms will call you for an LBO model test. Finally, you will have the result on Monday.
We also list down common asked questions in a PE interview in section 5: Prepare for the interview. You can visit there to prepare yourself ahead.
For Interns and Analysts position: you can find the timeline in the “PE timeline table” above. However, always double check with your target firms because Interns and Analysts are not PE firms’ recruiting priority and the process can vary year by year.
Interview process is not as exhausting as that of Associate and interview questions skew towards fit questions more than deal experience and case studies.
3.2.2 Off-cycle recruitment process:
The Off-cycle process is applied for below situations:
- Middle Market funds recruiting Associate positions,
- Positions in non-US markets,
- Positions for non-experience in Investment Banks
Among those 3, Middle market firm recruitment is the most common case. Therefore, we will focus on the process of (1). The requirement, timeline and process of (2) and (3) will depend on which exact position the firm is recruiting
The process of recruiting will start after the On-cycle process, from December to February. Successful candidates in this track will start 1.5 – 2 years later, the same timeline as On-cycle successful candidates.
However, if you apply for any vacancy that firms need immediately, you can start instantly. Those recruitment timelines are more random throughout the year.
The off-cycle recruiting process usually lasts longer, in which recruiters want to assess your “fit” and critical thinking abilities on deeper levels and they also require more thought and preparation of a real investment thesis.
Headhunters have little power here but you can still try to reach out to them and check if there is any vacancy.
3.2.3 Summary of the key differences
Mega Funds and Upper Middle Market Funds
Mostly Lower Middle Market funds. Mega Funds and Upper Middle Market funds still can recruit if there are available slots
Analysts in Bulge Bracket and Elite Boutique Banks
Analysts at smaller firms/banks
People who do not work in banks
Roles not in the NYC
|When?||The process will start in August or September||The process will start around December or January|
Days to weeks
Starts and ends very quickly
|Interview||A paper LBO or a two-three hour LBO is more common in On-cycle recruitment.||Focuses on the in-depth thought process; therefore, taking-home LBO model and presentation is often applied|
Before writing your resume, think carefully about what will make your resume deal-oriented – in the below table, we score all the relevant experiences so that you can have a direction for your resume
|Score||Relevant work experience – For pre-MBA Associate|
|5||An analyst at Bulge Brackets or Elite Boutique Banks|
An analyst at Middle-Market & Boutique Banks
An analyst at a Middle-Market Private Equity firm
|3||An experienced candidate at Big4, Valuation firms, and Risk Management|
|2||An internship at Wealth Management or Boutique Financial service firms|
|1||Relevant finance experience including: student-run funds, finance and business clubs|
|Score||Relevant work experience – For Analyst|
An internship at PE.
An IBD internship at Bulge Brackets/Elite Boutique Banks
An internship at Hedge funds
An internship at Sales & Trading, Equity Research in Investment Banks
|3||An internship at Big4, Valuation firms, and Risk Management|
|2||An internship at Wealth Management or Boutique Financial service firms|
|1||Relevant finance experience including: student-run funds, finance and business clubs|
If you can score 4 or 5, it means that you have a preferred experience for Private Equity. But what if you only get 1-3? Definitely, there will be more work to do with your resume but we will share how to twist that.
- Step 1: Take a look at the current job description of Analyst/Associate/Senior Associate and pick the keyword when your target firm describes that position.
Both job description and actual work of PE’s Analyst and pre-MBA Associate are related to Investment Deal. Therefore, the key theme of the resume should be your Achievements/Involvement in Deal transactions, emphasizing on Due diligence, Financial Modeling or Market Valuation.
If you apply for Senior Associate positions, Deal experience is important but experience in managing companies, restructuring organizations, etc should be highlighted also because Senior Associates probably involve more in portfolio companies’ operation and management.
- Step 2: Select your achievements/involvements that you can read
There are some ground rules that you should follow here
- You should choose 2-4 achievements under each position. Do not put only 1 achievement as it will raise the concern that you did not achieve much. There is one exception here: IB Analysts who have just started their jobs in the last 2-3 months.
- Change any relevant word into “deal”, if possible. People who scored 1-3 in the table above often slip this rule but this principal can help them have a more PE-driven resume.
- In each achievement, remember to put the size of that deal, type of that deal, and your action/involvement.
- The order of deal size, deal type and your involvement should be consistent across bullet points. We often recommend this order [Your action/responsibility][Deal size][Dealtype]. Consistency will help the hiring team catch up all the information quickly.
- Start your point with an action verb to get the attention and clearly express what you did
Those rules will be beneficial also for anyone who owns a strongly related experience to private equity.
3.4 Prepare for the interview
The interview process will include multiple rounds. Normally, Analysts and Associates will have 2-3 interview rounds; some firms even organize 4-5 interview rounds. Internship recruitment can be less heavy: only 1-2 interview rounds.
First interview round is to screen the candidate profile by asking some fit/behavioural questions, such as Why PE? Why this firm? etc. For Associate recruitment, it will be conducted by headhunters via phone. For Analyst and Intern, it will be conducted by the PE’s hiring team.
Other interview rounds will be conducted in-person and will skew towards technical questions, case study, deal experience, etc
3.4.1 What do recruiters evaluate?
Private Equity firms will evaluate your skills, your technical knowledge, and why you are interested in PE and investment deals. Many questions are designed to test these competences. Simply put, interview questions will be belong to 6 main categories:.
(1) Why private equity associates?
(2) Why the firm?
(3) Are you comfortable with financial modeling?
(4) Are you a good team worker?
Growth/profitability driver models (3)
Quick IRR math questions (4)
(1) Evaluate the growth of a deal
(2) Tell me about one of deal experience
What is the firm’s current portfolio? (1)
Tell me about the firm’s previous strategies and exits (2)
What do you know about the firm’s investment thesis? (3)
Which companies do you think are the best and the worst (4) in the portfolio?
If you had been able to do something different, what (5) would have you done?
(1) What are the major companies in this industry?
(2) Which top company will you invest in?
(3) What are the company’s growth drivers and risk factors?
(4) What is that company’s outlook in five/ten years
Solve cases involved in 3-statement models with a focus (1) on the revenue and expense drivers
A take-home LBO model and presentation (2)
A three-hour LBO modeling test (3)
A simple paper LBO (4)
3.4.2 How to prepare and ace an interview
#1. For fit/behavior questions, this is the part where you tell your stories with interviewers. Thanks to these questions, recruiters will learn how your previous academic and work experience fits into the private equity and also strategies of the firm you apply for.
The questions in the first place always surround:
- Introduce a little bit about yourself / Walk me through your resume
- Some of your strengths, weaknesses
- Your achievements and failures
- Future plan and why Private Equity?
What you should prepare here are crafting your own stories (reflecting your achievements, past experience, transferable skills and leaderships), and backing up small personal stories to answer questions related to strengths and weaknesses.
If you have some disadvantages in your profile such as low GPA, non-target background, fewer outstanding accomplishments, fewer finance internships, and etc., you have to prepare stronger responses to make up for these “real weaknesses”.
#2. For technical questions, what you will be interviewed always sticks with accounting, finance, valuations, and practical deals.
- Accounting: Financial statements (types of financial statements, links between different types of financial statements), revenues, operating costs, EBITDA, debt & equity, etc.
- Finance: Equity Investments (stocks), Fixed Income Investments (government bonds, corporate bonds, commodities, currencies) , Derivative Investments (options, futures, forwards, swap), etc.
- Valuation: Valuation metrics and multiples, (Discounted Cash Flow, LBO modelling, etc.), knowledge about mergers and acquisitions, etc.
#3. Other non- technical questions: Beyond technical comprehension, private equity firms also want to test your knowledge about the market, practical deals and companies. Your work is to keep abreast of news about markets, imminent IPO, bond issuances, and mergers & acquisitions on a daily basis. They can also ask your opinion about the firm’s portfolio and what you will do accordingly. The questions largely depend on your experience on your profile. That means if you present your active involvement in transactions/deals, you might get many questions about it. Discussing the deals is considered the most challenging part in an interview.
4. So Why Private Equity?
Compared to Investment Banking, Private Equity is more interesting to work for. It is not all about buying and selling companies, you also have to manage and improve the operation of the companies. The bonus in Private Equity is more variable because you will receive both bonus from your performance and the percentage of investment returns. Getting to Private Equity is difficult, besides graduating from top university or being top employees in Investment Banks, you also need to have relevant experience such as working on deals. However, it’s worth a try, the more you prepare, the higher chance you have to get into Private Equity.