Just like investment banking, private equity roles are very structured. The following is a summary of each of the roles within private equity and the responsibilities for each.
Though it is rare, some private equity firms do hire analysts directly out of undergrad. These positions are usually highly competitive because it allows an undergrad to effectively skip investment banking and get into private equity right away. Similar to an investment banking analyst, private equity analysts are responsible for the creation of various different private equity documents, conducting the financial analysis on potential acquisitions, creating models, creating presentations, managing the due diligence process, and conduct industry research.
The main difference between a private equity analyst and an investment banking analyst is the type of deal that the analyst works on. In private equity, almost every deal that you work on is a buy-side buyout transaction. In investment banking, an analyst may work on a sell-side M&A transaction, a leveraged finance debt deal or an equity offering or IPO.
Strong private equity firms that do recruit analysts typically recruit for the most elite schools. While it is not impossible to get a job as a private equity analyst from a non-target school, the typical private equity analyst candidate will come from an Ivy League or a top 5 undergraduate business school.
For firms that do not hire private equity analysts, Pre-MBA associates are the most junior people in the private equity firm. Associates are tasked with the majority of the financial analyses, financial modeling, industry research, due diligence on potential acquisitions, and document creation in a purchasing process. Associates are expected to do the majority of the technical work in a leveraged buyout transaction.
Typically, associates participate in a 2-3 year program before going back to graduate school to get their MBA. This is especially true with the larger private equity funds that have a more structured associate program. Smaller private equity firms may offer opportunities to move up in the fund depending on how many senior people they have at the time.
Associates can come from a variety of backgrounds including investment banking and management consulting. A private equity firm will recruit more investment bankers or more management consultants to fit its individual strategy. In general, investment banking tends to offer to best skillset for a private equity associate. Specific backgrounds can vary greatly, but in general the more prestigious the investment bank the more competitively the candidate will recruit. Additionally, more technical groups such as M&A, Leveraged Finance, FIG, and Financial Sponsors recruit best for private equity because of how technically focused they are. This is not a hard and fast rule, but a good rule of thumb.
Vice Presidents are the key point of contact between the managing directors, principals and the analysts/associates. Vice Presidents manage the internal deal due diligence process with analysts and associates by setting the tone for types of analyses and research that needs to be done in order to evaluate investment opportunities and ultimately get comfortable with the investment thesis for the buyout opportunities. Additionally, Vice Presidents work with principals, managing directors and partners on strategy and negotiations for a potential buyout. Vice Presidents are very active in the negotiations of a private equity deal and must maintain relationships with investment bankers, lawyers, auditors and consultants who are involved in various aspects of the transaction process.
Vice Presidents usually come from a top tier business school if they have not been promoted internally. These positions are some of the most competitive to recruit for out of business school, so in almost all cases, the people who land the position have had prior PE experience before school. At the end of the day, the better your experience and the business school, the more likely you are to land one of these highly coveted Vice President roles.
Principals are the final level of hands-on execution professionals and are ultimate quarterbacks of the deal. They are in charge of less of the analytical work (which is mostly done by VPs and associates) and are more focused on overseeing the direction of due diligence and negotiating transaction documents. Principals must know all of the small details of the deal because he or she will be negotiating these details with the counterparty, and small changes in terms can lead to big differences in outcomes. A good principal must be a good team player and have a great amount of experience in order to effectively negotiate with all the counterparties.
Principals are typically high achieving Vice Presidents. Depending on the firm, you could get the promotion between three to six years. Ultimately, the more that you can take in and learn as a Vice President, the faster you will get that desired promotion.
Managing Directors and Partners are the most senior members of the private equity firm and set the strategy for the entire firm. Managing Directors and Partners are responsible for managing portfolio companies, finding new target investments, maintaining relationships with investment banks and consultancies, and raising new funds from investors. Managing directors are ultimately responsible for achieving returns for investors. They must be good at managing people both on their deal teams and in portfolio companies, finding new investments, and setting strategy for new investments.
Almost all managing directors and partners have been Vice Presidents at a private equity firm. Some Managing Directors or Partners may come from a company within a specific industry to help manage portfolio investments in that industry. In those types of cases, they are typically referred to as Operating Partners and are not heavily involved in the transaction processes.