9 things every junior investment banker needs to know about working in private equity

Junior investment bankers don’t go into the industry for the glory. Those days are behind us and most are posing existential queries about life, career and purpose now more than ever.

A typical investment banking analyst or associate has a few options: continue on as a career banker; join a private equity firm or a hedge fund; sign up to some other buy-side firm; go into a corporate; get an MBA; join a tech firm or a start-up or become an entrepreneur.

But despite all these choices, the IB to PE step is still one of the most popular, lucrative and promising. If you’re a junior investment banker trying to land that dream private equity role, this is what you need to know about what it takes to the move to the buy-side.

1. Step back and look at the big picture

Be cognisant of regional politics, global affairs, central bank decisions, and industry movements. You may work in the financial services sector, but the purpose of an investment bank is to advise every other sector. Understand what is going on around you, and stay ahead of the trends.

2. Think like a buyer

Understand what drives a business, regardless of size or sector. Be able to determine what capital structure makes sense to achieve the business’ financial goals. Your keenness and speed in understanding and deciding on a business situation can drive the interview.

3. Know more than your product or sector

If you work in ECM, know the type and size of debt a company needs. If you work in DCM, understand why a potential consolidation merger could be a game changer for the sector. Too often junior investment bankers get caught up in just their particular sub-team – do not make this mistake.

4. Modelling skills are key

Every single buy-side interview, whether it’s private equity, private debt, distressed debt, real estate or an infrastructure fund, will require you to be able to build a model from off a blank canvas, i.e. an empty Excel workbook. Know the ins and outs of LBO and merger models. Understand the dynamics of debt and cashflow waterfalls.

5. Understand the deals you have worked on

Yes, there will be a few accounting and valuation questions; however, the majority of the technical interviews will ask you about the deals you worked on in your job as an investment banker – your particular role in each deal, how independently you worked and if you had any direct interaction with the client.

6. Network, network, network

Due to the obscene hours of banking, the average junior banker hardly ever gets the opportunity to get out and network. Having contacts at the firm you wish to move to next can do wonders. If you can skip going through HR, you are one step closer to your goal. Use social media to ask people for a coffee. You will be surprised at how receptive others can be.

7. Get friendly with headhunters

London’s recruitment services sector employs as many individuals as the banks itself (maybe an exaggeration). The point is that headhunters are very active at the junior level, as this is the most liquid end of the market with positions opening up every few months. Be aware of which headhunting firms have the best relationships with the sector and type of buy-side firm you wish to work for.

8. Thoroughly research the private equity firm before the interview

Investment banks have been around for hundreds of years. Whereas private equity firms, including the most well-known ones such as Blackstone or KKR, have not been around for more than 40 years. If you are interviewing for a smaller mid-market firm, it is more than likely the original founding partners are still running the firm and will, at some point during the interview process, interview you. You therefore need to know everything about this firm: when it was set up, who the founders were, what they did prior to setting this up, how much they manage (AUM), how many employees they have, whether they do they just private equity investments or also have a private debt and a real estate platform, how many funds they have, and the list goes on and on. The more you know, the better the interview will go.

9. Know your reasons for switching

Be able to explain why you wish to move to private equity. Is it because of the pay, or are you sick of pitching and instead wish to be involved in the investment process? Look within to understand your motives behind the move way before you show up to the interview.

Sameer Rizvi, CFA is the managing partner of RD Capital Partners LLP, an alternative investments firm that makes mid-market investments into the European healthcare sector. He has previously worked as an investment banker at the Royal Bank of Scotland and Commerzbank.

Photo by Alessandro Bianchi on Unsplash