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After the MBA: Private Equity

Posted in Test Prep on April 24, 2011 by

Welcome to another post in our After the MBA series, in which we chronicle a variety of post-MBA career opportunities to give you a sense of which might be the best fit for you.


Private Equity

What it is:

Private equity firms make investments in the private equity (equity that is not quoted on a public exchange) of operating companies. A private equity firm’s goal is two-pronged: 1) acquire an ownership or large minority stake in a company and 2) maximize the value of that investment.

Private equity firms can utilize a variety of strategies in their quest to obtain a controlling (or significant minority) position in a company, depending on the state of the company and other factors. For example, venture capital, which involves investing in young, not-yet-profitable companies (rarely for majority control), is technically a subset of private equity. Conversationally, the term “private equity” most often refers to investment strategies like:

  • Growth capital (aka expansion capital and growth equity): Growth capital is a type of investment (most often a minority investment) used to fund business expansion without bringing about a change of control in the business. Companies seeking growth capital investments are often mature companies (i.e. profitable), able to fund normal operations, but seeking to undergo some sort of transition or change which they would not be able to achieve without outside funds.
  • Leveraged buyout (LBO): A leveraged buyout occurs when a private equity firm uses a significant amount of borrowed money to acquire an ownership stake in a company. Though any kind of company could technically be the target of an LBO, it is important for private equity firms to ensure that the company will be able to meet its loan payments; thus, LBO candidates typically are stable companies with little debt, significant assets, and opportunities for growth.

Once private equity firms have acquired a stake in their target company, they seek to maximize their return — that is, make as much money as possible on the investment. This can be accomplished through a variety of methods (ex. merger or acquisition, recapitalization, or an initial public offering).

Associates and partners at private equity firms are involved in two main processes surrounding these investments. The first involves deal origination and transaction execution. Deal origination involves (among other responsibilities) identifying potential companies for acquisition and developing and maintaining relationships with mergers and acquisitions intermediaries and investment banks. Transaction execution comes in after the private equity firm decides to pursue a certain target company for acquisition: the firm must assess the company’s history, management, and financial forecasts; analyze the merits of the investment (“valuation analysis”); submit an offer; and if both parties are amenable to the offer, perform due diligence in order to ensure there are not any “deal killers” (i.e undisclosed risks and liabilities).

Once transactions have been executed, they must be managed; this involves supporting the company’s leadership and otherwise increasing the value of the investment. This is the second function of PE firms and is known as portfolio management.


Private equity jobs can be demanding; the specific hours really depend on the kind of firm. In general, the work schedule is less intense than that of investment bankers — with the exception of when a deal is being carried out, at which point associates might be expected to work around the clock if necessary. At some large private equity firms, however, associates do work very long hours (~90 hours/week); smaller firms generally require 60-70 hours/week, often with a fair amount of travel time required.

Salary Range

The median base salary for Class of 2010 Harvard Business School graduates going into private equity was $135,000, with median guaranteed other compensation of $155,000. At Northwestern’s Kellogg School of Management, the median base salary for Class of 2010 grads going into Private Equity/Leveraged Buyout was $132,000; the median base salary for Private Equity/venture capital was $115,000 (these figures do not include other guaranteed compensation).

How to get a job in private equity

Private equity jobs can be difficult to land. Most firms use headhunters to recruit candidates; networking is another option. If your private equity network is lacking, your best bet is to contact recruiting firms (try places like Oxbridge, SG Partners, and CPI).

An MBA alone won’t necessarily make you an attractive candidate for a private equity firm. Above all, these firms are looking for private equity experience — and, failing that, extensive investment banking experience at a “bulge bracket” firm. It is also possible to move into private equity from a field like consulting — however, headhunters will be less likely to recruit from this industry than from investment banks, so candidates will need to make more of an effort to attract attention and display finance-related skills.

If you’re attending a top business school, it is possible that private equity firms will recruit at your school; take advantage of these opportunities! Some MBA programs also offer courses focused on private equity — if you are interested in PE, these academic experiences can only help you land a job post-graduation.