What Candidate’s Need to Know about Private Equity 

For candidates interested in making a career in the Private Equity space they must first understand the nature of the business so they can know not only who to apply to for  a position but more importantly how to properly position themselves with each firm.

Not all Private Equity firm are alike and it is these differences which intelligent and professional candidates need to identify to be successful in obtaining a role with a Private Equity firm.  Although this is a somewhat broad brush stroke the argument can easily be made that there are two main types of Private Equity funds: transactional and operational.

A transactional fund looks for deals where they can pay a below book value or the smallest premium possible for an entity and then resell the entity in a few months or perhaps a few years for larger premium.  The funds are looking for the entity that may be out of favor at the present time but within a couple of years they believe will be highly desired.  Also they look for an entity which they believe may be worth more money broken up into smaller pieces, rather then kept whole.

These firms are looking for people with strong investment banking experience accompanied with solid transactional experience.  They want financial modelers and individuals who can identify value within the different parts of the capital structure of an entity.  These transaction oriented firms typically hire from the major investment banks and in a down market such as the present one, they may hire senior investment bankers.  The firms typically also use a lot of leverage and are very dependent on a high pace transactional marketplace.

An operational fund looks for deals where they can acquire an entity which they feel is being mis-managed or run inefficiently by present management.  Or they may be looking for deals where a company is searching for additional capital or operational expertise to perhaps increase their product line or build a new factory to increase production.  These firms are looking for deals where the can add value to the firm and hopefully make the firm and hence their investment more valuable within the next 2-5 years.

Since this value is predominately achieved by streamlining operations and enabling the firms to run more effectively these Private Equity funds look for individuals who possess operational experience.  These funds recruit heavily out of the management consultant ranks and other operating companies. They value candidate with real life experience and in many cases either proven operators or individuals with a strong operational foundation and an MBA. Yes, these operationally oriented funds do recruit from the investment banks but for much fewer, typically lower positions and even these investment banking recruits typically have operational experience.  To be promoted within these Private Equity Funds operational experience is usually a must.

Since there are two types of funds it is very important for candidates to not only understand the value their experience offers the funds, but also which funds will properly value this experience due to their firms investment strategy.  Furthermore it is very important for candidates to know what type of work they enjoy performing. Obviously there are big differences between these two strategies and the professional career paths that are associated with these two types of firms.  The type of fund chosen will depend on the individual’s strengths, what is deemed important to them and what is desired in the future.