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Do Your Due Diligence Before Taking a Position in Private Equity

This is the first of a two-part article

Due diligence is a well used phrase in the private equity world - it's all about thorough investigation before you make an investment. And yet it's not so readily thought about when you're thinking of taking a new role. Well it should be! Arguably this is the most important investment you will make because you're investing yourself.

It's also one of the toughest decisions you'll have to make and there's no investment committee with years of accumulated experience to fall back on. Once you're in a new role, every day invested can't be invested again. So do your 'due diligence' well.

There are two areas for due diligence.

First, the role itself and second, the firm you'll be joining. In this article, I'll look at the due diligence you need to do related to the role. In a follow-up, I'll look at the due diligence you need to do related to the firm.

With regard to the role itself, there are four main criteria to benchmark. Score them each out of five. If you are consistently getting four and above then this could be the role for you. If any score less than four out of five then another one really needs to be six out of five to compensate!

· The day-to-day role

· The people you'll be working with

· The longer term career opportunity

· The compensation

The day-to-day role

Ask some thoughtful questions to find out what you'll actually be doing. For example, you might ask how a typical day is structured and ask questions to understand what you need to do to be thought of as a top performer. See if you can spend time with someone doing this job now or who recently held it.

The people you'll be working with

Try to meet as many people in the team as you can and make your own judgement. If you can meet them in an informal setting that's also helpful. It gives you the opportunity to get to know them before you start in the role and to give a bit of yourself as well so that they get to know you too.

The longer term career opportunity

It's helpful to have a feel for this both inside and outside of the company. Ask about a typical career path through the business and ideally talk to someone who has progressed. With regard to how the role will be perceived externally, ask your recruiter or other knowledgeable industry insider how the firm is thought of and get a picture of your options in say two and five years time if you perform well in this firm.

The compensation

Most private equity firms are pretty fair at paying market rates. You can expect the base salary and bonus to be broadly similar or a bit less than your current role. Not many people get an uplift when entering private equity. Find out about the medium and longer term compensation. If you feel you need to negotiate, firstly make sure you show how keen you are to join the firm and then, armed with all your data, make your argument as to why you should be paid more.

This structured approach can help you decide if a role is for you and also help you compare a number of roles if you are facing multiple offers from different firms.

AUTHORGail McManus Insider Comment
  • To
    26 August 2011

    Gail, "Pay for Performance only" may have benefitted the PE firms in attracting true talent who have been in the tenches of the deals and operational success. Way to go!

  • To
    26 August 2011

    Thanks for the info Gail, looking forward to the follow up..

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