The private equity industry has changed substantially over the past few years. Assets under management have grown, but exit opportunities have narrowed. Funds have, in general, become more patient and involved investors. This more considered focused has led private equity to demand a different set of skills than those they looked for traditionally.
Today, success in private equity is less about rebuilding a target company’s balance sheet and packaging the pieces up for an IPO and more about building a better operating entity. Private equity funds are spending more time managing their portfolio companies. They are therefore less interested in financial engineers and more interested in hiring individuals with a broad management education.
This makes MBAs more suited than ever to private equity careers. PE funds are interested in MBAs who are willing to roll up their sleeves inside portfolio companies. MBA’s with hands-on turnaround experience are particularly sought-after.
MBAs can also fill fundraising positions. As many funds are looking to broaden their investor base, they are increasingly bringing the fundraising process in house. This too is driving demand for experienced MBAs who bring broad relationships with potential investor groups.
Investment banking experience is less relevant
There is a myth amongst MBAs that says substantial investment banking experience is necessary to break into PE. This may have been true in the past, but it isn’t any longer. Today, most firms are looking for a diverse talent pool with experience in a variety of industries and functions.
The following graphic from PrivateEquityCompensation.com shows the diversity of backgrounds of their sample of hundreds of private equity professionals.Nowadays, former investment bankers account for less than one third of the total.
The really good news is that demand for talent is also driving pay increases for private equity professionals. Last year, the industry saw a healthy increase in cash compensation and, in some cases, even guaranteed bonuses.
About the Author: David Kochanek is the Publisher of the Private Equity & Venture Capital Compensation Report. Mr. Kochanek brings over 20 years of professional experience including mergers and acquisitions, company turnarounds, executive recruiting and project management with a top 10 consulting firm.