Archive for May, 2008

Timeline of Private Equity

Tuesday, May 13th, 2008

A large component of any Private Equity professional’s total compensation is based off of the percentage of carry they receive once the fund has participated in a capital transaction.  Therefore it is very important for professionals and candidates to understand the average time period that it takes for a fund to close on a deal and then experience a capital transaction with that same investment (Timeline) of Private Equity.

The timeline for Private Equity is constantly changing and is determined by many factors and can vary from fund to fund.  It can also be different depending on whether the fund is transactional or operationally oriented.  Over the last ten years we have seen the average Timeline change drastically and it is presently circling somewhere back to where it was in the mid 90’s before the tech boom.

During the mid 90’s the Timeline for Private Equity was considered by many investors to be at least 18 months long on the low end and in many cases 30-48 months if not more.  This was the same Timeline that had been the norm in the Private Equity investing space for the previous 50 years.

It was during this time that Private Equity was truly a rich man’s game; to work in Private Equity meant that for many years your base salary would be the majority of your income.  You had to be financially secure enough to ride out the Timeline. This could be especially tough if you had not yet received carry from a deal. During this time the only individuals who participated in the carry were usually partners or senior individuals.

As the internet boom started in the late 90’s, the Timeline for Private Equity started to shorten drastically by the height of the boom the Timeline had decreased to an average of 18 months. This decrease was due in large part to the fact that many companies which were not saleable a couple of years earlier were now hot commodities and could be sold for a large premium or placed into the IPO marketplace.

With the shortened Timeline came much larger paychecks on a yearly basis. There became a blurring of Private Equity and Venture Capital investing due to this shortened Timeline and because of this, many professionals were eagerly trying to enter this field

With the implosion of the Internet bubble came a lengthening of the Private Equity Timeline.  Although this lengthening was delayed partially by a new payout structure for Private Equity investments, it still occurred.  Add to the fact that 2008 has started off in a credit crisis this lengthening has continued for the most part and we are now back to the more traditional Private Equity Timeline of 30-48 months.

Goal for your Private Equity or Hedge Fund Internship

Monday, May 12th, 2008

Congratulations, you have landed a coveted Private Equity or Hedge Fund internship.  Now you need to answer the most important question, what should your goal be to accomplish during this internship?  The politically correct answer is to experience a real life investing situation and to obtain a glimpse into how a professional investor invests.

Unless the internship is for the entire school year and summer you will never learn more about investing than some basic investment principals and modeling skills.  What your real goal should be with an internship is to gain enough respect from your employer that you are offered a position with the firm after graduation.  And if your internship employer can not hire you, gain their respect so that they offer to be a reference for you, or better yet refer you to some of their professional associates.

The respect you gain during an internship from your employer can have lasting professional results.  An internship is an on the job interview, this is your time to shine and show your employer what you are capable of accomplishing.  This is a time to show them how well you effectively communicate and how well you handle and more importantly how you work in a stressful environment 

An internship is an opportunity to network and build relationships with numerous individuals who have an opportunity to see and judge in real life how you work and how you interact with others.  These relationships can help you dearly in the future by identifying investment hypotheses, identifying potential investors and recommending potential employers to name a few. 

In today’s investment world professionals move around a fair amount and for this reason you want to always be thinking about how your previous bosses and peers view you.  Furthermore; with this constant moving comes numerous opportunities which may fast track your career or lead to that ideal role.

Yes, you can build up some solid modeling skills with an internship program, especially with one of the major bulge bracket investment banks in NYC, but remember these internships are just as much of an opportunity for you to show them what you are capable of as it is for them to show you why you would want to work for them.  

To achieve this goal and to earn the respect of the boss from your internship employer can mean different things and can be accomplished many different ways but first and foremost it will require hard work, a very stronger work ethic and the ability to effectively communicate with your peers and bosses.  I would also suggest you show your employer that you have a passion and desires for the investment industry.  Realize that you will not always do fun and exciting work on an internship rather you are doing the same type work every other successful intern before you has completed.

Remember: Your name/reputation is extremely important in this close knit community and you do not want to do anything to negatively affect it. 

Next week: Part 3 – Top Ten Tips to Making the Most of Your Internship

Happy Mother’s Day

Friday, May 9th, 2008

The employees of PrivateEquityJobs.com would like to wish our mothers a Happy and safe Mother’s Day.

We thought in honor of this Holiday we would provide our readers with these historical perspectives and economic tidbits.

In the United States, Mother’s Day was imported by social activist Julia Ward Howe after the American Civil War. However, it was intended as a call to unite women against war. In 1870, she wrote the Mother’s Day Proclamation as a call for peace and disarmament. Howe failed in her attempt to get formal recognition of a Mother’s Day for Peace. Her idea was influenced by Ann Jarvis, a young Appalachian homemaker who, starting in 1858, had attempted to improve sanitation through what she called Mothers’ Work Days. She organized women throughout the Civil War to work for better sanitary conditions for both sides, and in 1868 she began work to reconcile Union and Confederate neighbors.

When Jarvis died in 1907, her daughter, named Anna Jarvis, started the crusade to found a memorial day for women. The first such Mother’s Day was celebrated in Grafton, West Virginia, on 10 May 1908, in the church where the elder Ann Jarvis had taught Sunday School. Originally the Andrews Methodist Episcopal Church, this building is now the International Mother’s Day Shrine (a National Historic Landmark). From there, the custom caught on — spreading eventually to 45 states. The holiday was declared officially by some states beginning in 1912. In 1914 President Woodrow Wilson declared the first national Mother’s Day, as a day for American citizens to show the flag in honor of those mothers whose sons had died in war.

Nine years after the first official Mother’s Day, commercialization of the U.S. holiday became so rampant that Anna Jarvis herself became a major opponent of what the holiday had become. Mother’s Day continues to this day to be one of the most commercially successful U.S. occasions. According to the National Restaurant Association, Mother’s Day is now the most popular day of the year to dine out at a restaurant in the United States.

For example, according to IBISWorld, a publisher of business research, Americans will spend approximately $2.6 billion on flowers, $1.53 billion on pampering gifts — like spa treatments — and another $68 million on greeting cards [1] Mother’s Day will generate about 7.8% of the US jewelry industry’s annual revenue in 2008. Americans are expected to spend close to $3.51 billion in 2008 on dining out for Mother’s Day, with brunch and dinner being the most popular dining out options [2]  1.     ^ http://www.phillyburbs.com/pb-dyn/news/147-05082008-1530894.html   2.  ^ http://www.avpress.com/n/08/0508_s25.hts

 

What Candidate’s Need to Know about Private Equity

Thursday, May 8th, 2008

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.

 

What is a Hedge Fund?

Wednesday, May 7th, 2008

I recently attended a Hedge Fund conference where this question was asked to a panel of five Senior Institutional Investors by the panel’s moderator also a senior Institutional Investor. After a moment of silence numerous points were made but no single clarified definition was formulated. The moderator of the group who had asked the question made this comment:  A hedge fund is technically any investment strategy that is not long only.

The panel proceeded to add a few of their own thoughts:

  • Any investment strategy where investors pay a performance fee

 

  • Any investment strategy where the investor’s investment is locked into the fund for at least 6 months

 

  • Any investment strategy excluding real estate and private equity

 

  • Any investment strategy uncorrelated to the markets - equity or fixed income

 

  • Any investment strategy which can only be invested in by accredited investors

 

After awhile this question was left open and the panel proceeded to discuss many other interesting perspectives regarding Hedge Funds in the institutional investor space.  The one perspective that really caught my attention was the fact that these large institutional investors viewed what hedge funds do for their portfolio in many different ways. 

The majority of the panel viewed Hedge Funds as a way to generate additional alpha which may or may not be correlated to the markets.  Another group viewed Hedge Funds purely as products which should be benchmarked against fixed income returns and the funds should provide low volatility and absolute returns.

Obviously what a Hedge Fund is and what a Hedge Fund is supposed to accomplish is a question with no one correct answer, but then how are we suppose to identify a Hedge Fund in the marketplace?

So now I ask the question to you; what is a Hedge Fund? I look forward to reading your responses

Present Job Market for Private Equity and Hedge Fund Professionals

Tuesday, May 6th, 2008

As the Founder and CEO of a niche job board focused on the Private Equity and Hedge Fund space I receive calls and emails on a daily basis asking me about the present job market for these funds.  I wrote an article about the present job market about four weeks ago but in this volatile market it is already time for an update.

Presently, we are still seeing both Private Equity and Hedge Funds hiring although the hiring process is slowing down, resulting in fewer opportunities. We are also entering a time when hiring for experienced professionals usually slows down at these funds.  This slow down is historically due to the funds concentrating their hiring needs on recent graduates and/or preparing for start dates of the 2nd and 3rd year analysts the funds have hired from the investment banking analyst programs.

The slow down has historically affected the investment oriented roles more and that is the case this year as well.  Infrastructure roles are still being actively recruited/hired for. In many cases these are the roles we are seeing posted on our website and hearing about through our network of recruiters and funds.  We do not believe this focus on infrastructure roles will slow down anytime soon since the institutional investors are demanding these Private Equity and Hedge Fund firms have strong infrastructure in place. 

We have seen a recent up tick in quantitatively oriented roles and the technical roles which support these quantitative positions.  These new positions have included Quantitative Analyst, Statistical Arbitrage Portfolio Manager and Quantitative Trading Analyst. We have also seen roles for Application Developers roles being discussed and the need for programmers with experience in more exotic languages such as Python being desired.

As the market remains volatile I am sure that the job market will as well.  There is no question that this year whether or not a firm is hiring is a case by case basis.  The funds that can hire are finding this an excellent time for opportunistic hiring and are taking advantage of this opportunity.   

We strongly suggest that all experienced candidates keep your eyes and ears open for the solid opportunities out there. We have found this opportunistic hiring allows highly qualified candidates to find excellent “next step” type of roles. The process is slow however, so you want to start networking now rather then waiting until you want to make a move.  When it is an opportunistic hire the firms must believe in the person 100% and that usually entails numerous meetings and dinners with individuals at all levels.

Bottom-line, there is still a lot of hiring going on in the Private Equity and Hedge Fund industries although it is focused within certain business categories and analytical styles.  The slow down that has occurred in the last four weeks is for the most part, an historical seasonal trend in hiring, but keep in mind the recruiting process is slowing down as well.  We believe overall hiring will remain strong within certain categories and anticipate hiring to pick up at the end of the summer for investment roles as per the seasonal trends.

How to find a Private Equity or Hedge Fund Internship.

Monday, May 5th, 2008

I am just finishing my sophomore year and had not really given much thought yet to internships. What do you think is the best way to find an internship that would help me to find a job when I graduate?” Michael,  Comment to posting on 5/2/08

First I suggest you concentrate your search within the immediate proximity of your school. This opens the possibility for a summer internship to become a full year internship which is always viewed positively in the eyes of future recruiters and/or employers.

 

Secondly, start making a list of the Hedge Fund and Private Equity Firms that you can approach for internships.  You may want to broaden your list to include investment banks and traditional investment management firms to approach. If you do not get an internship at a Hedge Fund or Private Equity Firm, these alternates will at least start you on the right track for interning and relative investment experience.

 

In order to identify funds in your school’s proximity I suggest using the internet and your school’s alumni center.  The alumni center can be an extremely valuable tool for your search since most firms in the alternative investment space do not actively recruit interns. Therefore if you want an internship with these funds you must be the proactive part of the equation.  Having the school connection or something else in common can be a very strong selling point for you.

 

Once you have identified a couple of funds send your resume to the firm’s Managing Partner and then following up with a phone call in about four business days.  Your goal for this call is to make sure they have received your resume and to express to them (the decision makers) why they should talk with you.  Be prepared for this call: know your resume, know as much about the fund as possible, have an investment idea or two ready and know what is happening in the market.

 

As you prepare for an internship in this space I would suggest you start reading the Wall Street Journal and Financial Times everyday. Firms want to know you are passionate about investing and this action can help express this passion.  Believe it or not something as simple as reading these papers and having the knowledge of what is going on in the market places you into a smaller more select group of candidates.

 

Also make sure you do have one to two investment ideas ready to go and more importantly the reasons you like the ideas. Your reasons should be concise and to the point. You need to get across your main points in less then 1 minute. Monitor these ideas as if they were presently in your portfolio and know on a daily basis if anything has changed your investment hypothesis.  I know many candidates who actually have a short one page write up which they give to prospective funds.  This write-up allows the fund to see the candidates writing style, presentation and thought process.

 

If you are applying for an internship with a large fund that has its own recruiting infrastructure in place, remember a firm’s recruiter can be your biggest cheerleader during the interviewing process–always be kind and follow their instructions. Do not try to go around the recruiter as this will be detrimental in most cases.

Please understand that if you are applying to a large fund your competition will often be stiffer than with smaller funds. For this reason a smaller fund or lesser known fund can be a great source of an internship.

If you are not successful in obtaining an internship with a Private Equity firm or Hedge Fund then look into internships with either a traditional investment management firm or investment bank. Any type of internship within the financial services field will be beneficial to you in the long run.

 

Next Monday Student Blog: What to get out of your internship?

Graduate Primer for Hedge Fund Job

Friday, May 2nd, 2008

Congratulations to all the soon to be College Graduates of 2008. You might be wondering how recent college grads obtain a job in the Alternative Investment space. The first thing to know is if you are graduating this month and are now reading this post with no job lined up – you are unfortunately well behind the rest of your peers in the job search and likely too late – but help is just below.

If you want a position with a Hedge Fund or Private Equity firm upon graduating from undergrad you typically need to start your process two to three years before your graduation date. The summer after your freshman year you need to find an internship ideally with a fund. For the next two summers you will want to have an internship as well. Also working with a fund during the school year is an excellent addition. If you have not had internships your chances just got a lot smaller.

Few College Career Centers inform their students of this but in the alternative investment space, internships are extremely important particularly if you do not want to head to New York City and spend 100+ hours a week working in an analyst program for the next 18-36 months.

To land a job without any internship experience means you must be persistent with the funds and dedicated to working your network and your school’s alumni network; many jobs in the hedge fund space are found through networking. You might also look at working with qualified recruiters who understand the business and can introduce you to strong firms. Look into to acquiring any of the designations which are valued in the Private Equity and Hedge Fund space. Unfortunately some of the designations take years to complete but starting the testing process can make your resume look stronger and show your passion for the industry.

In any case you will need to possess a well written resume and concisely express to those who are interviewing you that you are a driven, intelligent and mature recent grad looking to give your employer 110%. Make sure to discuss any leadership or team building roles you have had during college

If all else fails and you can afford it we recommend offering to work for free or a minimal fee for a month or two. One last thought - As the number of hedge funds grows so will their employment needs. With few hedge funds having a recruiting infrastructure in place a persistent and dedicated recent grad has an opportunity to enter this exciting and rewarding industry. If you want to work in the field and do not already have a position lined up you might want to consider doing some serious research these last few days before your don your cap and gown as opposed to spending it doing the normal senior slacking…

Welcome to Private Equity Jobs!

Thursday, May 1st, 2008

I want to personally welcome everyone to PrivateEquityJobs.com’s new blog. Our hope with this blog is to provide another tool to help educate industry professionals and passionate students about the private equity and hedge fund industries. Furthermore we hope to provide qualified knowledge in regards to the career paths and potential employment opportunities within these specific investment funds and the alternative investment space as a whole.

My hope is that with the help of our community we can become an interactive center of knowledge focused on careers and potential careers within the alternative investment space. I have spent the last 10+ years of my professional life working as an Executive Recruiter and Consultant to Private Equity firm and Hedge Funds.

This area of investing changes quickly and the employment opportunities in the space change on a regular basis as well. To fully understand the changes in the employment landscape you must understand the bigger picture of the alternative investment space; I intend for this blog to provide the solid understanding of the industry that you will need to be successful.

As the blog grows you will see that we have invited guest bloggers to write about certain subjects and provide for us another perspective on issues. We will try to make this blog as interactive as possible and ask that individuals with questions address those questions through our comment section at the bottom of each blog. I will do my best to answer each question either in the comment section or sometimes as another blog entry.

Thank you for your interest in our blog and PrivateEquityJobs.com, I look forward to hearing from our readers and building a dialogue with the community.

Simms Browning Founder & CEO PrivateEquityJobs.com