Want to know what it is actually like to work in Private Equity from someone who has actually been there and done it? Well you’re in luck because in this post James (who you remember gave a great interview and amazing information on how to get in to Private Equity) continues to give us insights into the industry.
In this part of the interview we’ll be covering what it’s like to actually work in Private Equity. Some of the topics covered include:
- What are the hours like in Private Equity?
- Is Private Equity just Investment Banking 2.0?
- How does Private Equity pay compare to Investment Banking?
- Is it actually any fun working in Private Equity?
Without further ado let’s get into the interview…
Gary: James…welcome back. So can you take us through what the hours are like in Private Equity?
Honestly it depends what fund you go to. Some funds have a reputation for longer hours and certain funds have a better lifestyle. The hours a particular fund works do not in any way correlate to the level of activity and the size of the fund. It is a purely cultural thing. It depends on who you work for and the background of the people that work in the fund (a fund that is almost exclusively bankers will have far longer hours than one that is more mixed).
If you work for some Private Equity Funds you’re going to be working every weekend (just like in banking) while others you will have to do a maximum of 2 – 3 weekends a year. It’s still not ‘normal work hours’ mind you. I worked on average until 8 – 10 at night. If you’re busy you work later and if you’re not as busy you may finish a little earlier.
The big difference is that it is much more flexible. Unless you’re in the middle of the deal or need to submit something to the investment committee you can take your work home and have dinner with your partner or family.
Gary: I didn’t realize it was so variable…some firms sound just like Investment Banks. One of the things you commonly see written on the internet is that Private Equity is just Investment Banking 2.0…is that true?
Definitely not. It really depends on the firm you go to and although this may be true of some of the larger firms where you are dealing with larger amounts of money and more established businesses it is not true of the smaller firms or firms which invest in smaller companies.
You still do the grunt work and financial modelling like you would in Investment Banking however you get much more involved in the legal aspects of the deal and you also get incredibly close to management. It is a fair step up in terms of responsibility.
The stuff you do as a junior in Private Equity is more like being in the senior roles of banking. You are definitely not left out of the loop like you are as a junior Investment Banker. It is not another few years of being an analyst. You are expected to participate in the discussions and strategy as opposed to being given discrete tasks and being sent off to do them.
Gary: Wow that sounds great! So how does the pay compare to Investment Banking? Is everyone rolling in cash and carry?
You’re certainly not rolling in it if you work in Private Equity. The base pay you get is probably equivalent to what you would be making if you had stayed in Investment Banking (or it may actually be a little bit less) and most firms do not offer carry at the junior level. The step ups in wage and bonus are also not as high as they would have been in Investment Banking
Further carry is not realized immediately and it is a way they really lock you in. You only get to realize the gains from the investment over 3, 5, 8 and 10 year time periods. It is not a near term cash windfall. You really need to be at the firm 5 years to get the option to invest in a project and then you need to wait between 3 and 10 years at the firm to see your reward.
[A note from Gary: Carry is where you get to invest cash in a deal the Private Equity Fund has done. Sometimes this is provided to you as a non-recourse loan and you get all the upside if the deal is successful]
Most firms also have a general partner commitment. It means that once you start getting carry you are required to also invest a certain amount on a pro rata basis in each of the deals your firm does.
This means that staff don’t actually feel all that rich for quite a long period of time because they have all these cash outflows as they invest in deals that haven’t been harvested. The real benefit comes if you stick around for the long term.
Gary: Well you’re still getting paid pretty well…but it certainly doesn’t have the near term upside I thought it did. And what about the level of camaraderie? Are Private Equity Funds typically ‘fun’ places to work?
Most Investment Banks are fun places to work as a junior banker because there are a lot of young people your age. At Private Equity firms it tends to be much more firm and culture specific because the teams are so much smaller.
My team was quite fun to work in because a couple of the senior people were quite social and the younger staff members were always keen to go out. If it doesn’t exist in your firm you need to make the effort to create it. If your firm is a bit bigger and there are a few junior people then it can be as much fun as banking.
A massive thanks to James for helping us get a look behind the Private Equity curtain. Did you have any questions for James? Post them below and I’ll try and get them answered for you…