Private Equity Internship: The Complete Guide

The most common path to work in PE is getting an internship from investment banking, working full-time there for a few years then applying to work as a PE Associate. However, there is another track that is less mentioned: joining a Private Equity Internship, then performing excellently to be converted into full time Private Equity Analysts

PE internships are mostly offered in some mega-funds such as KKR, Blackstone, Ares, Silver Lake, Carlyle, TPG, Apollo, etc. In the middle-market and boutique firms, the internship position is more random, and in the small firms (<$100 million in AUM), it’s rare to be offered the formal internship. 

On the other hand, there are firms, such as GTCR or Audax group, that stopped their Analysts Full Time recruitment program and only get new hire Analysts from their intern pool.   

The chance to get into PE is always competitive and challenging, as well as having an internship in PE. Having a good understanding of PE and preparing for the internship as soon as possible will help you secure your seat in this industry.

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 Private Equity career path

There are 5 levels in a Private Equity firm, including: Analyst, Associate (a.k.a Pre-MBA Associate), Senior Associate (a.k.a Post-MBA Associate), Vice President/Principal and Managing Director/General Partner.

1.3.1 Analyst

The associate level used to be the only entry position to Private Equity. They usually have 2-3 years of experience in investment banking or consulting firms before moving to Private Equity. Nowadays,  Private Equity firms hire Analysts straight out of college with some roles similar to those of the associates. However, the analysts mainly focus more on logistical tasks to support the Associates or Vice Presidents.

1.3.2 Associate

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. 

You can read more about Analysts and Associate in our Comprehensive Guide for Private Equity

1.3.3 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. 

1.3.4 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. What is a Private Equity Internship?

The internship duration is usually 3-6 months. Depending on the sizes and structures of the PE firms, the internship experiences will be different. The main role of an intern is to support the Analyst or Associate so there are some same general tasks you have to handle no matter which types of the firm you are in:

• Building financial models, reviewing CIMs (Confidential Information Memorandum), and assisting the evaluation process.
• Monitoring portfolio companies.
• Cold calling and cold emailing to source new deals.

The intern will start first with the last two responsibilities: cold calling, deal sourcing and monitoring portfolio companies. Then he or she starts being involved more beyond administrative tasks. 

A typical day of a PE Intern:

• Assist in the reporting and operations of existing portfolio companies, develop presentation materials for the firm and portfolio companies.
• Assist in due diligence for potential new investments, including market research and analysis of industry trends, financial modeling, and valuation.
• Work with deal teams to evaluate potential investment opportunities through industry research, data analysis, and the review of financial and business information, and support in the execution of live deals.
• Support cross-departmental strategic initiatives and capital raising by researching and identifying new investment opportunities.
• Develop detailed financial models and get the feedback from the Associate.
• Analyze operational forecasts and budgets for active and potential investments.

PE Internships do not follow the strict hiring process like IB. However, to be prepared for an PE Internship, you have to start in Year 1 of University. In our session “How to win a Private Equity Internship?”, we will share a timeline and explain further this recommendation of preparation. 

3. How to Win a Private Equity Internship?

3.1 Why internship in Private Equity?

Here are some common goals of an PE Internship

• Test how fit you are to Private Equity: There are different paths in the Financial Service industry and Private Equity is just one of them. If you are still concerned whether this career is for you or not, an internship is a good chance to test it out before a full time offer comes
• Build up your deal-oriented working experience: even if you cannot land a full-time offer after this internship, a deal-oriented working experience is still helpful if you apply for Investment Banking or other Wall Street Careers later on . The internship strengthens your experience while showing to all recruiters how serious you are with your career. 
• Land a full-time Analyst offer: this objective is ranked after the other two because we want to manage your expectation. There is still probability to achieve this goal; however, the chance is low as PE firms do not need too many Analysts in their teams.  

3.2 Private Equity internship: pros and cons

Pros:

• PE internship is a highly relevant experience if you want to apply for any job in finance. You will have more exit opportunities such as full-time employees for IB or PE.
• If you graduate and you don’t get the full-time job you want, the off-cycle PE internships can be a good plan for you to gain deal-based experience and build a network yourself to IB or PE or corporate development.
• You can broaden your network and gain referrals or recommendations from the internship.

Cons:

• PE internship rarely leads to full-time offers unless you intern at the mega-funds with a well-structured program.
• PE internships at small firms are often unpaid or partially paid. Commonly, the graduated interns will be paid around $13-$15 per hour while the pre-MBA interns in the mega-funds will be paid from $23,000 – $30,000 a year.

3.3 Recruitment timeline

You can refer to this table to better understand  an PE internship’s timeline. Most Mega funds name internships as Summer Analyst programs.

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 Summer Analyst On-cycle recruitment from this timeline:

In conclusion, if you want to land an internship at the end of your 3rd year, you should start applying in your 2nd year (from May to July) and start preparing at the end of your 1st year. 

Most Summer Analyst Programs are sent to target schools. Therefore, only students in those institutions can get the link to the recruitment portal. So what if you are not in those target schools but you still want to get an PE internship?

3.4 Cold email template

There are several other options that you can think about, such as: finding an PE internship in smaller firms (Off-cycle) or actively reaching out to hiring teams in mega funds for an internship. Either way you choose, you have to write several “cold emails” to them. Here we share a template that you can use in this process.

The chance to get responses is low but it’s quite good if the response rate is 10-20%. Remember that only a few of those responses will turn into interviews and potential internships.

3.5. Networking

Networking is more helpful for students who are not in target schools as mega funds mostly focus on target schools. 

One of the resources that you can leverage is the school alumni network. Do check if there are any alumni who are working in Private Equity in general and your target firms in particular, write to them and express your wish to find an internship if there are any vacancies. 

3.6. Interview

PE Internship interview questions cover similar topics as the ones for Analyst and Associate. The main points of the PE Interview are covered in the article on Private Equity; the differences for internship interviews are:

• Less emphasis on deal/client experience.
• Less emphasis on case studies and modeling tests.
• More emphasis on technical questions such as modeling skills.
• More emphasis on fit questions, the market/industry understanding, and how you conduct the sourcing process.

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.