From Undergraduate to Private Equity

Q: How do I get into private equity straight out of undergraduate?

I receive this question frequently, and I believe in many cases you can do yourself a disservice by going straight into private equity as an undergraduate student. What follows is a word of caution.

Private equity is often lumped together, but quality varies the same way it does in every other industry. If your objective was to one day own and operate a restaurant, would you start out working for any restaurant that would hire you? Hopefully not. You want to find a group of people that will train you, and help you build a career.

Today there are more private equity firms than the industry has ever seen. Every month I hear about multiple new funds, search funds or fundless sponsors setting out to build their own business in this space. The good news is that there are more places to apply. The problem is that many of these new shops will not have the volume (transactions) required to get an entry-level analyst sufficient exposure to the process. Small shops also lack the resources to properly train new hires. This combination makes it difficult to build a skill set quickly.

The benefit of going through an investment banking program is the training and exposure to transactions. Investment banks don’t have to worry about portfolio management, which means everyone is focused on successfully closing deals. As an analyst that is what you need to be exposed to if you want to hit the ground running in PE.

This work experience will allow you to be valuable day one. Now you might be thinking that it doesn’t matter because once hired you will be doing the work / learning anyway. In my opinion this can be a dangerous perspective. If you are hired without a valuable skill set, and there is no training program in place, then it is likely that the work you are expected to do does not require a skill set. Private equity involves the tedious effort of sourcing new deals. This requires calling investment bankers, attending conferences, signing confidentiality agreements and reading business descriptions. This work doesn’t require a strong financial background, and it can be done in perpetuity.

If you can find a private equity group willing to train you, and they are actively closing deals (at least one a quarter), then it may be an incredible transition. Otherwise, if your ultimate goal is to work in PE, put your hours in at an investment bank. After a couple years you will be interviewing for much higher-quality PE firms looking for candidates that don’t require training.