GUEST COMMENT: What to expect if you interview for a job in private equity
Things might be looking up for the private equity industry. Companies which have held on as long as they can and endured over two long and hard years of recession, are now desperate for capital. Their equity can be had for next to nothing. Henry Kravis and Steve Schwartzman must be licking their lips.
Investors know this and are allocating capital to the sector accordingly. P.E. firms are gearing up for more fund-raising in 2011 than they've carried out since the boom times. Even mid-market fund Montagu recently raised over €2bn in their first full fund-raising since spinning out of HSBC.
As is often the case in the financial sector, the salient conclusions aren't rocket science. More assets under management equal higher management fees meaning more money to spend on salaries. Additionally, funds need to ensure they deploy capital and will need staff to analyse investment opportunities in order to do so. As a result headcount should be picking up.
Private equity is NOT an advisory role
If you've decided to try for a job in PE, how best to prepare for private equity interviews when all you're used to is an advisory role?
At the risk of sounding obvious, the main difference is in thinking like an investor. Advisors are used to pitches and profiles and a common buyside complaint is that candidates never really think through issues that a buyer and potential owner of these profiled businesses might face.
When I made the switch I found this to be the key factor. I've outlined four points below which will help you get into the private equity headspace:
1) Think like a boss
You're in control now. You're not an advisor any more; the time to be subservient is over. Can
you pitch the buyout firm to management of a target company or a prospective new fund investor? Show you can forget that you might be half the age of the person on the other side of the meeting table. Assume the body language, tone of voice and choice of language which convey confidence, but not cockiness.
2) Demonstrate conviction
Decisions are made, capital is invested and fingers are crossed. Sometimes assets you've analysed and vouched for don't perform according to their business plans and management projections. This doesn't mean a profitable exit isn't possible, but you'll need to demonstrate that you are able to roll with the punches.
3) Follow a sector or a sub-sector
Be ready to pitch an idea, complete with financing and a deep understanding of the intricacies of the business model. Consider the capex cycle and changes in working capital needs as the firm grows and matures, as well softer issues like the management's ability to adapt to their new role working for buyout managers and incentivising them to do well.
4) Be thorough
P.E. requires you to think like both a banker, understanding financials, cashflows and valuation, but also like a management consultant who has insight into integration issues, buy-and-build strategy etc.
