Pluses and Minuses of Working in Private Equity

Published: Dec 21, 2015

Topics: Finance Job Search MBA Salary & Benefits

Since the turn of the century, the private equity industry has grown tremendously. Today, private equity firms worldwide manage some $3.8 trillion in assets, up from “only” $716 billion in December 2000.

Broadly defined, private equity is an investment in a nonpublic entity or private company. The majority of the firms that invest in private equity (some 3,300) are headquartered in the U.S. In fact, nine of the top 10 private equity firms worldwide in terms of fundraising totals are located here.

Naturally, when dealing with billions of dollars, you need a wide variety of highly talented employees. As a result, private equity firms employ some of the most experienced talent in corporate America. And the personnel needs of PE firms are as broad as they are deep.

Private equity firms routinely hire recent undergrads, recent MBA grads, and veterans of the corporate world from all types of industries. And if you do have what it takes to work in PE, you’ll have a hand in making billions of dollars for your investors while guiding top corporations (and the thousands of people they employ) through major changes and improvements.

Of course, before you begin your PE job search, you’ll want to know what you’ll be getting into. And so, below you'll find the major pluses and major minuses of working in this highly competitive, challenging, fascinating field.

PLUSES

1. Excellent pay
In 2014, private equity professionals with an MBA received average earnings (base pay plus bonus) of $296,155, according to the 2015 Private Equity and Venture Capital Compensation Report. Those without MBAs received $264,464. But keep in mind that most new hires don’t make that much money. You’ll start in the $100,000 to $120,000 range—which is no small potatoes.

2. Strong employment outlook
Job opportunities for financial analysts who work for securities, commodities, and other financial investment and related firms are expected to grow by nearly 37 percent from 2012 to 2022, according to the U.S. Department of Labor, or much faster than the average for all careers.

3. Opportunities for experience
If you work at a “generalist fund,” you’ll get the chance to learn about a wide variety of industries—from pharmaceuticals and information technology, to oil exploration, consumer goods, and air transportation. You can continue to be a generalist throughout your career or develop specialized knowledge of a particular industry that will increase your marketability with specialty PE firms or hedge funds and investment banks.

4. Opportunities to transform a company
If you work in a high-level position, you’ll get the chance to use your expertise to improve a company and make it a more attractive candidate for an IPO or a sale.

5. Stimulating work environment
You’ll be close to the action as your firm makes deals and buys and sells companies. Your colleagues will be well educated and creative, and each PE project provides a different set of challenges that you must overcome.

MINUSES

1. Tough to break into the industry
It’s hard to land an entry-level job unless you attended a top-tier college or have related experience in the hedge fund or investment banking industries. Many top firms require applicants to have an MBA (or be pursuing an MBA).

2. Limited opportunities for advancement at small firms
The guys sitting at the very top of the firm aren’t going anywhere—their names are figuratively, if not literally, on the door of the company. So your chances of advancing at your firm may be low—but you can always start your own firm or move into a career in the investment banking or hedge fund industry.

3. Sometimes-stressful work environment
The breakneck pace and crisis management required of many private equity employees may wear thin. Even the most jaded Wall Street operator will cop to wanting to spend more time with his or her family after a while.

4. Lack of diversity
Women hold only 11.7 percent of senior-level positions in private equity firms as of March 15, 2015, according to Preqin (an alternative investment research firm)—a percentage that’s significantly lower than their representation in the overall U.S. population. Ethnic minorities are also vastly underrepresented in the PE industry.

5. Negative view of the industry by the public
Critics of private equity firms believe that PE firms are bad for companies and employees in the long run—causing massive job losses. The Private Equity Growth Capital Council counters that “the direct investments made by private equity firms have a multiplier effect as the companies in which they invest hire workers, invest in research and development, and pursue new innovations and products. In short, private equity investment drives significant economic activity and growth.”

The above was adapted from the new Vault Career Guide to Private Equity.

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