This week was the London School of Economics’ Alternative Investments Conference. As we’ve already reported, one hedge fund manager in attendance stood up and said students should be prepared to work 60 hour weeks for free, and a group of venture capitalists declared their industry almost impossible to get into.
Elsewhere, senior figures from the private equity (PE) industry were giving speeches about working in PE today. Unfortunately, their elements of the agenda were governed by Chatham House rules, meaning we can’t say who they were. We can report what they said and relate that they were very senior and that several middle aged men armed with Blackberries from rival firms were there to listen in.
Getting out of investment banking and into private equity is tough. There are 200-300 applicants for every place. Based upon what was said at the LSE this week, this is what you need to know.
1. It’s no longer just about making money, it’s about serving the client
In the past, private equity businesses would raise funds by offering to generate huge returns. This has now changed. Today, funds are raised by talking to clients about the industries they’re interested in gaining exposure to, the risks they’re willing to take, the countries they want to invest in. Money raised is then allocated accordingly. This is a completely different approach to the past and it means that private equity businesses now employ swathes of senior client relations people and client-focused investment professionals who can create tailored solutions, whereas before they just had investment professionals who could spot a good deal.
2. It’s no longer just about making money, it’s about being good in the process
In this new era of client-service, private equity funds are also beholden to clients’ request that they invest their money ethically. PE funds find themselves constrained by requests to only invest in companies that operate diversity policies or practice ethical sourcing. This is especially the case in emerging markets. It means that investment professionals’ role has been overlaid with a system of ethical due diligence.
3. It’s no longer about restructuring a company’s books to make money, it’s about operational improvements
In the past, PE funds could make money by restructuring the finances of the companies they acquired. That’s no longer the case (“Those opportunities have been arbitraged away.”). Now, they need to make money by investing in a company and improving its operational efficiency in terms of procurement, cost structure and technology systems, for example. As a result, most funds have created large operational groups which work alongside investment professionals. These groups are increasingly important and look like a growing source of employment in PE firms.
4. It’s all about raising money from investors in Asia
When the private equity industry was born, most of its money came from investors in the U.S. This changed as the industry pushed into Europe and European investors added their cash. Now, the big push is to raise funds from investors in Asia – especially Asian pension funds. If you have good Asian pension fund contacts, get in touch with a large PE fund: it is likely to be interested in employing you.
5. Africa is the future
Africa is one of the last unconquered territories for the world’s international private equity funds. Some big funds already have Africa teams, but few have African teams on the ground (they operate from London). This is likely to change in the next few years, when PE professionals will be sent forth to find investments in Nigeria and elsewhere.