The Chartered Financial Analyst (CFA) qualification is a badge of honour on the buy-side and a must-have for equity researchers. It’s less common in investment banking and even less prevalent in the private equity industry. However, I studied for the CFA as an investment banking analyst and it helped me directly make a move into private equity. Here’s why it’s important.
Unlike an MBA or Masters in Finance, the CFA more than just touches on virtually every aspect of investment management and financial markets. Rather than being a specialist in just a single investment banking product, in private equity it’s crucial to have a broad understanding of everything. You need to be a sector expert, but also understand about all forms of debt financing; you need to be an excel modelling wizard, but also to know why population demographics and monetary policy will shape the industry. A CFA professional generally packs all these into one and private equity firms like this.- A lot.
In private equity, the hardest aspect is not finding the right companies to buy, or employing the most appropriate turnaround strategy, or finding the best exit opportunity. It is convincing limited partners, i.e. investors, to invest into the fund that you are currently fund-raising for. Whether or not the investor is familiar with the finance industry, almost every investor has respect for the CFA. Having those three letters next to your name on a business card makes an insurmountable difference.
Besides just a bachelor’s degree, a lot of professionals have a master’s degree or an MBA. The CFA is not common among junior bankers and will help you stand out in the uber-competitive world of private equity. And let’s face it – in this dog-eat-dog world of the City, you need any edge you can gain.
Private equity firms, hedge funds and investment managers, in general, are under constant scrutiny around market ethics, priority of deal executions, insider trading, conflicts of interest and money laundering. Having a professional qualification that legally and ethically binds you by Code of Ethics and Standards of Professional Conduct makes a massive difference. It proves that you understand the difference between what is right and what is wrong. In private equity, a firm’s reputation is everything.
To become a CFA charterholder, you need to have a bachelor’s degree, four years of work experience, and pass all three levels of the CFA, requiring a minimum of 1,000 hours of study in three consecutive years of your life. Given that the entire program is self-study outside of work, those that complete all three levels and become charterholders tell potential private equity employers that they are capable of working hard by themselves, while meeting the demands of their investment banking jobs. With a few years of investment banking as well as the CFA, a private equity firm has practically very little to teach you, other than to throw you into the depths of a buy-side deal.
Sameer Rizvi, CFA is the managing partner of RD Capital Partners LLP, an investment management and advisory firm that invests into European healthcare, real estate and technology companies. He has previously worked as an investment banker at the Royal Bank of Scotland and at Commerzbank.