Private equity is the promised land for young investment bankers and continues to lure the best and brightest across from the sell-side. What's more, an increasing number of firms - Terra Firma, Blackstone, KKR - are recruiting graduates directly from university. Competition is notoriously tough - Terra Firma gets 250 applications for every available role, Blackstone only lets a tiny proportion through the door.
But do you really know what you're getting into? Is working in private equity really that different for juniors than staying in investment banking? Yes, actually.
For a start, if you work at Terra Firma, every graduate recruit spends three months shadowing its founder and chief investment officer, Guy Hands. There are six recruits every year, and each spends a rotation period following his schedule.
We spoke to Fabian Lang, an analyst at Terra Firma who joined via its graduate programme in 2014. He is has an MSc in Risk and Finance from the London School of Economics and a bachelor's degree from the University of Stuttgart. Outside of work, he likes to snowboard and has a passion for travelling.
We asked Fabian what a private equity analyst really does every day, and what it takes to succeed in PE. This is what he told us.
Firstly, as an analyst you work on the financial model for the deal. This isn’t just a case of punching numbers into a spreadsheet, but coming up with the initial operational assumptions for the investment and building a forecast for the potential of the business.
As part of this, you need to liaise with external people involved in the deal – this could be the leveraged finance division of an investment bank, commercial consultants, but also management teams within industries. For example, once we find a company that we’re interested in, we contact management teams of firms within the wider industry to get an overview of which companies are good and bad, as well as the outlook for the sector. As an analyst you’re involved in that.
Finally, you could be seconded across to one of the companies in our portfolio, which means you work with the company as they develop their strategic plan.
Yes, when you’re an entry level PE analyst you have exposure to the CFOs and CEOs of our portfolio companies. I spent a few months working in the headquarters of Four Seasons Health Care, which is one of Terra Firma’s investments, in Wilmslow, Cheshire. I worked with the team that was looking at the issues affecting their core business, who their customers are, the market dynamics of the sector and scoping out a strategic plan for the company.
I usually come in around 8.30am to read the news to catch up on industry developments. If we’re working on a new deal, it’s a really busy time with a lot of meetings. As an analyst, you have direct exposure to managing directors and senior professionals working on an investment. You’re not just a number cruncher. You’re expected to have a view on whether it’s a good investment.
If you have some downtime, you’re expected to come up with new investment ideas. The possibility of them ever coming to fruition is very remote and you will churn through a lot of investment ideas, but that’s the reality of pitching for new deals anyway. It’s about showing senior management you have a good commercial understanding of how to assess an investment idea.
You can end up working late if there’s a live deal.
If you’re in a portfolio company, it’s harder to predict as you’re driven by the CEO’s business day.
I’m currently working on a deal with a German company, so I travel fairly frequently because of that.
Part of the training here involves shadowing our chairman and chief investment officer, Guy Hands, for three months. His travel schedule is very hectic and you fly to every corner of the world meeting the people he meets. This is amazing, getting an insight into how he works and sitting in on some top level meetings and witnessing strategic discussions. I can’t think of another junior role where you’d get so much exposure.
Numeracy is obviously key, but you need to be good at mental maths. Say you’re in a meeting and you’re asked to come up with a calculation on something based around some of your models. You need to be able to calculate that then and there – it’s rare you can go back and check something later.
You also need to be a team player. Yes, it’s a cliché, but we’re a really close-knit team here and if you prefer working alone, then the job is not right for you.
Then there’s the commercial judgement side of things. You’re given company reports and other numbers connected to a potential investment and you need to know what they mean. You are given a huge amount of financial information, and expected to come up with an initial view on whether it’s a viable investment by assessing the underlying assumptions of the financials you were given and checking if those make sense when compared to the wider industry or economy.
The competition is tough – Terra Firma received 250 applications for each available place. I’m probably not the best person to say what exactly made me stand out, but if I had to guess, my Master’s degree combined with my industry internship experience played a part. I completed my MSc at the London School of Economics, and during my undergraduate studies in Stuttgart, I completed several internships in strategic and financial positions. These included roles at Daimler, UBS and a consultancy in London.
Understand that you’re probably not the only one with an investment banking or McKinsey background and you need more to stand out from the crowd. You could have worked outside of the financial sector, or founded your own business – something that can show your commercial understanding or capability. It’s a huge plus.
Know what you’re getting into. People in private equity demand more from their juniors earlier on and you need to be prepared for that. It’s not just that the hours are long, but that the level of responsibility is high and you need to manage that.
Finally, be proactive. You’re part of a small team and senior managers can’t wait for you to ask for assignments. Show that you’re committed to working hard and are able to deliver without being spoon-fed tasks.
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