How To Get Into Private Equity? | KwK #81

In the niche field of private equity, salaries can be substantial, but high taxes often diminish take-home pay. Preparing for interviews requires a deep understanding of your resume and the ability to think creatively about unfamiliar topics. Real-world experiences shared by industry professionals highlight valuable networking opportunities with influential figures in various sectors. This conversation aims to provide insights into working in private equity, including salary expectations and interview preparation tips from experts at leading firms.

Amandeep, a graduate from the University of Delhi's SRCC with a degree in economics, shares his educational journey and career path. He completed his schooling in Amritsar before moving to Delhi for college. After graduating in 2019, he worked at Boston Consulting Group for two years before joining Apex where he's been employed for over two years now. Amandeep reveals that while studying at SRCC cost him around ₹90,000 plus living expenses of about ₹2-3 lakhs over three years, he secured an impressive starting salary between ₹15-20 lakhs upon entering consulting.

From Schooling to Investment Banking Success Divyansh's journey began in Calcutta, where he completed his schooling before attending SRCC in Delhi. After graduating in 2015, he accepted an investment banking role at Deutsche Bank and worked across Bombay and London. Despite initial plans to pursue a CA qualification due to family influence, Divyansh returned home after a year to complete both CFA and CA certifications before joining BCG.

Navigating Career Transitions with Determination After gaining experience at BCG for a year, Divyansh transitioned into investing by securing a position with Blackstone through networking within the consulting sector. He emphasizes that success is not solely based on luck but requires hard work and determination alongside favorable circumstances. His educational investments included significant costs for CFA while managing living expenses during college; however, these efforts have led him toward fulfilling career opportunities without familial pressure.

Educational Journey and Investment Returns Kartikey shares his educational journey, starting from schooling in Delhi to pursuing an MBA at IIM Ahmedabad after working at BCG. He emphasizes the importance of education and its return on investment (ROI), noting that his total expenses for college were around 20 lakhs over two years, with a significant ROI upon joining K.

Career Paths: Consulting vs Finance In discussing career paths post-MBA, Kartikey highlights the competitive nature of job placements among graduates. While many aim for consulting roles—particularly MBB firms like McKinsey and BCG—only about 100 out of 400 students typically secure these positions each year. The finance sector sees fewer opportunities compared to consulting but has become more accessible than before.

Diverse Career Opportunities Post-MBA The breakdown of roles taken by IIM Ahmedabad graduates reveals diverse options beyond traditional sectors. Approximately 30-40 students enter product management or general management programs offered by major companies like Tata or ABG, which provide rotational stints across various departments to develop leadership skills within their organizations.

The Evolving Pathway: Consulting's Role in Private Equity Consulting is increasingly recognized as a viable pathway to private equity, although it’s not the only route. In recent years, firms have shifted from primarily hiring investment bankers to also valuing consultants due to their high-quality talent and larger numbers. This trend has led private equity firms like Kadara to recruit more pre-MBA candidates from consulting backgrounds alongside those from banking.

Recruitment Dynamics: Pre-MBA Candidates Shape Opportunities Private equity recruitment often favors analysts and associates who are pre-MBA rather than post-MBA hires, especially in India where many banks prefer MBA graduates for entry-level roles. The landscape has changed significantly over time; now there is a broader pool of candidates coming from consulting compared to traditional investment banking paths that limit undergrad opportunities. Firms seek diversity by mixing both consultants and bankers but currently lean towards recruiting more heavily among consultants due to availability.

Advancement Without an MBA in Private Equity An MBA is not strictly necessary for a career in private equity, especially as firms increasingly offer track roles that allow advancement without an MBA. These roles enable individuals to progress within their organization after gaining experience, rather than returning to school. The decision often hinges on personal performance and firm policies regarding educational requirements.

Shifting Perspectives on Education Value The landscape of job opportunities has shifted significantly over the past two decades, reducing the necessity of pursuing an international education like an MBA solely for better pay or prestige. Many professionals now weigh factors such as geographical change, industry transition, networking benefits, or simply taking time off when considering further education. Ultimately, individual goals dictate whether pursuing additional qualifications makes sense.

Diverse Outcomes After Pursuing MBAs Post-MBA experiences can vary widely; some return to previous employers while others explore different sectors entirely with mixed success rates upon re-entering private equity markets back home. Those who study abroad may find limited opportunities if they wish to come back due to competitive hiring landscapes favoring local candidates with relevant backgrounds instead of foreign degrees alone.

Before pursuing an MBA, individuals should consider their personal goals and what they hope to gain from the experience. The potential salary increase after attending a prestigious institution like Harvard or Stanford can be significant, but it often depends on individual circumstances rather than solely on the degree itself. Networking opportunities are invaluable; connections made during an MBA program can lead to unique career advancements and experiences that go beyond financial benefits. Additionally, some programs offer introspective classes that encourage self-discovery and help students clarify their future paths—these intangible aspects of education play a crucial role in shaping one's professional journey.

Understanding Private Equity Investments Private equity involves raising funds from institutional investors, known as limited partners, to invest in private companies. Unlike mutual funds that diversify across many stocks, private equity firms typically focus on a concentrated portfolio of 10-12 investments over a period of about five years. The goal is to improve the operations and value of these companies before exiting with returns for their investors.

Revenue Models in Private Equity Firms Revenue streams for private equity firms include management fees based on capital raised and profit shares called carry after successful exits. Management fees usually follow a model where around 2% is charged annually while carry can be distributed differently depending on fund structures—either deal by deal or upon complete exit from all investments.

Hurdle Rates and Their Implications The hurdle rate represents the minimum return required before profits are shared with investors; if not met, no carry will be earned by the firm but it does not incur debt obligations like traditional loans would. Failure to meet this threshold could hinder future fundraising efforts rather than result in financial penalties within existing agreements.

Understanding Global vs Domestic Funds Global funds are typically larger, focusing on bigger ticket sizes compared to domestic funds. In India, there are around 105 global private equity funds and about ten active domestic ones in the mid-market segment. Domestic funds face a higher mortality rate as many fail to raise subsequent funding rounds after their initial investments.

Fund Structures: Localized Decision-Making vs Global Operations Domestic funds operate within India with decision-making localized among founders, while global fund decisions often occur outside of India despite having local operations. The structure varies; most Indian domestic firms function as Alternative Investment Funds (AIFs), whereas some may have different setups like LLPs or private limited companies depending on their history and regulatory environment.

Apax Partners is a global private equity firm managing $65 billion in capital, with operations across seven offices worldwide. Currently investing from their 11th flagship fund of over $10 million, Apax focuses primarily on buyout strategies—acquiring significant stakes in private companies. Their investment approach includes various sectors and specialized funds such as digital and credit investments; however, buyouts remain the core strategy. Notable Indian investments include tech services firms like Fractal Analytics and Chola Mandalam Finance, showcasing the evolution of India's private equity landscape towards larger stake acquisitions.

Blackstone, a leading alternative investment firm with over $1 trillion in assets under management (AUM), operates globally and has made significant investments across various sectors. Notable ventures include affordable housing finance through Arar Housing Finance, IT services via Emphasis, and the popular dating app Bumble. Blackstone's strategy often involves acquiring majority stakes in companies like Hilton without directly managing them; instead, they enhance existing management teams to scale operations effectively while ensuring alignment among key executives.

Kedaara Capital, established in 2012, is a private equity fund currently managing approximately $4 billion in assets under management (AUM). As they approach the end of their third fund and prepare to raise a fourth, Kedaara has made significant investments primarily focused on consumer brands. Notable investments include being the sole investor in Lenskart and backing Vishal Mega Mart, among others.

Lengthy Evaluation Timeline of Private Equity Investments The investment process in private equity involves a lengthy evaluation timeline, often spanning years before closing a deal. Initial meetings with potential companies can occur over many years without immediate interest in selling. Once detailed evaluations begin, the shortest timeframe for completing a deal is around four months but can extend to ten months or more depending on various factors such as due diligence and negotiations.

Negotiation and Closing Process in Deal-Making After initial assessments, investors submit non-binding bids followed by binding offers based on comprehensive financial and legal due diligence. The selection of an investor may depend not only on valuation but also personal rapport and perceived added value from the partnership. Finalizing deals includes negotiating terms among multiple shareholders leading up to signing definitive documents before capital is called for funding.

Understanding Average Ticket Sizes in Private Equity Investments Private equity funds vary in their average ticket sizes based on fund size and investment strategy. For minority stakes, investments typically range from $50 million to $300 million, while controlling stakes can go from $100 million up to nearly a billion dollars. Global funds may collaborate through consortiums for larger deals exceeding one billion dollars.

The Role of Limited Partners in Capital Raising Limited partners (LPs) play a crucial role by co-investing alongside private equity firms, allowing them to increase check sizes significantly—sometimes reaching as high as $500 million. These LPs include pension funds, sovereign wealth funds, university endowments like Harvard and Stanford, large family offices with substantial capital reserves, and occasionally insurance companies seeking investment opportunities. The trend is shifting towards including retail investors into alternative investments over time.

Evolving Team Structures in Private Equity Funds Investment teams at various funds are evolving, with sizes ranging from 10 to 25 professionals. Apex has a focused team of 10 investment experts in India, while another fund employs around 20-25 core members along with senior operating advisors and functional specialists. The total number of investment professionals across private equity in India is estimated between 250 to 300 people.

Hiring Trends and Future Growth Potential The hiring rate for junior roles like analysts and associates averages about two or three per fund annually, leading to an overall annual intake of approximately 40-50 new hires across the industry. This small scale reflects the current state but suggests potential growth as more diverse strategies emerge within private equity sectors such as infrastructure and technology investments. Over time, increased market depth could lead to larger teams similar to those seen in US markets.

In the private equity industry, salary packages can be quite lucrative but vary significantly between domestic and global funds. For analysts or associates entering a domestic fund, fixed salaries typically range from 30 to 40 lakhs with bonuses that can reach up to 200% based on performance. In contrast, freshers at global funds may expect fixed salaries ranging from 40 to 70 lakhs along with variable bonuses depending on individual and company success.

Preparation is Key to Interview Success Interview experiences reveal the importance of preparation and understanding core financial concepts. Candidates with backgrounds in Corporate Finance or CFA have an advantage, especially when revising past work and practicing case interviews. A solid grasp of three-statement financials, cash flows, and DCF is essential for success in private equity roles.

Mastering Case Interviews Case interviews are crucial as they demonstrate structured thinking skills necessary for problem-solving within investment roles. Candidates should break down problems into manageable parts while considering various factors that influence outcomes. This approach not only showcases analytical abilities but also helps interviewers assess a candidate's thought process under pressure.

Navigating Multiple Interview Rounds Interviews often involve multiple rounds where candidates must impress different team members due to the small size of firms involved in private equity hiring processes. Consistency across all interactions is vital; one poor performance can jeopardize chances significantly after extensive interviewing sessions spanning several days.

Industry Knowledge Enhances Evaluation Skills Candidates need to prepare thoroughly by researching industries relevant to their experience before entering interviews—understanding market dynamics enhances discussions about potential investments or business opportunities during evaluations. Familiarity with key players within those sectors adds depth during conversations regarding industry attractiveness.

'Financial Modeling' Round Expectations 'Financial modeling' rounds require candidates to project company revenues based on historical data while assessing growth drivers like costs and returns on investment over timeframes such as five years post-investment decisions made today—a comprehensive analysis linking commercial aspects back into models strengthens arguments presented at this stage too!

To filter candidates effectively, the primary criteria include educational background and previous employers. Top institutions like IITs, DU, and specific colleges such as St. Xavier's or LSR are preferred for their graduates. Additionally, experience in consulting firms like McKinsey or BCG and front-end roles in banking is highly valued. Ratings from these companies also play a crucial role; well-rated individuals receive priority during interviews.

Leveraging Networks for PE Opportunities To discover new hiring opportunities in private equity (PE), candidates should leverage LinkedIn to connect with current employees and reach out to headhunters. While direct follow-ups can be effective, it's crucial not to overwhelm recruiters with excessive messages. Building relationships with a few key recruiters can lead to alerts about suitable job openings.

Preferred Backgrounds and Essential Skills for Success Candidates from consulting or investment banking backgrounds are often preferred due to the skills they acquire, which align well with PE roles. Key attributes sought after include high IQ, curiosity combined with rigor in work ethic, and emotional intelligence (EQ). Although biases towards prestigious educational institutions exist among some firms' leaderships, there is an increasing recognition of the value that diverse backgrounds bring into decision-making processes within organizations.

Preference for Engineers Rooted in Historical Hiring Trends Engineers are often preferred in the private equity (PE) industry due to historical hiring patterns established by early PE firms, which were founded by MBAs with IT backgrounds. This trend led to a focus on candidates from prestigious institutions like IITs for analyst and associate roles. While there is no inherent advantage of engineers over chartered accountants (CAs) or finance professionals, the initial filtering process favored those with engineering degrees as they became more prevalent in recruitment practices.

Shifting Dynamics: Embracing Diverse Backgrounds The increasing acceptance of CAs into private equity reflects a shift towards valuing diverse educational backgrounds within financial modeling roles. Rank holders among CAs gain an edge during short-term opportunities but do not determine long-term career success; however, having a rank can open doors initially. The rise of industrial training programs at VC funds enhances awareness among CA students about lucrative job prospects post-qualification, encouraging them to pursue careers beyond traditional paths.

Limited Exit Opportunities in Private Equity Working in private equity (PE) often leads to limited exit opportunities, with many professionals remaining within the industry. While pursuing an MBA is common, it’s not considered a true exit; rather, it's seen as a break before returning to PE roles. Most exits occur when individuals transition between different PE funds for better growth prospects or senior management positions at portfolio companies.

Transitioning Within Investment Roles Exiting from private equity typically involves moving into other investment firms or taking on entrepreneurial ventures like starting one’s own fund. Some may find roles in consulting firms such as BCG or McKinsey after their time in PE. However, transitioning out of the sector entirely remains rare and usually requires reaching very senior levels within organizations.

Intense Workload Before Investment Committee Meetings A typical day at a private equity fund involves intense work, especially leading up to investment committee (IC) meetings. During peak periods, such as the week before an IC meeting, professionals often put in 12-18 hours of work daily. The workload is generally manageable for nine months but becomes rigorous during three months dedicated to due diligence on multiple deals throughout the year. This high-pressure environment fosters entrepreneurial spirit and commitment towards achieving specific outcomes rather than merely counting hours worked.

Structure and Purpose of Investment Committee Meetings Investment committee meetings are crucial in evaluating potential investments and vary by fund size; they can include anywhere from one person to several members discussing deal memos prepared by teams of four or five people. These memos outline investment theses and key commercial questions regarding prospective companies, with discussions potentially spanning multiple IC sessions depending on outstanding queries about each deal. Typically lasting between one to two hours per session, these meetings involve only internal team members without founders present unless specifically requested.

Frustrations of Work-Life Balance Guests express frustration with their jobs, particularly the inability to enjoy personal interests like movie outings due to work commitments. One individual longs for flexibility in scheduling and wishes they could prioritize leisure activities without impacting job performance. Another highlights the unpredictability of consulting roles, which complicates long-term planning and creates dependency on team dynamics.

Gaining Operational Insight The conversation shifts towards gaining operational experience within private equity or consulting firms. Participants discuss how hands-on experiences can enhance understanding and empathy when interacting with management teams. They emphasize that managing a profit-and-loss statement over several years is crucial for becoming effective operators, while also noting challenges faced during secondments at portfolio companies where alignment between investors and company goals must be established.

Defining Personal Work-Life Balance Work-life balance in the private equity industry is often subjective, with individuals defining it based on personal priorities. For some, like those who enjoy movies or have recently married, it's essential to carve out time for both work and personal life. Achieving this balance involves planning ahead and making up for busy periods by creating meaningful experiences during quieter times.

The Importance of Productive Engagement Productivity plays a crucial role in how professionals perceive their work-life situation; engaging in fulfilling tasks can mitigate feelings of burnout. Many find that as long as they are working on projects they care about rather than mundane tasks, the hours spent feel worthwhile. Flexibility within roles allows employees to manage their schedules effectively without feeling overwhelmed by weekend obligations.

Supportive Workplace Culture While intense phases may require extra effort during weekends occasionally, many professionals report minimal disruption to their off days compared to other industries like consulting or banking where weekend work is more common. Supportive workplace cultures foster understanding among team members regarding personal commitments while maintaining productivity standards when necessary—creating an environment where everyone feels valued and motivated despite challenges.

Travel frequency for work varies significantly among professionals, often depending on the nature of their portfolios. On average, individuals may travel once every two weeks for meetings and evaluations; however, many have shifted to virtual platforms like Zoom post-COVID-19. International trips are common during annual offsites in locations such as Thailand or Turkey, with durations typically ranging from two to four days. Companies foster a strong offsite culture that encourages team bonding in diverse international settings.

Common career mistakes often include forgetting to attach files in emails and mistakenly hitting 'reply all' instead of just 'reply.' These errors are seen as rites of passage for many professionals. To avoid such blunders, it's crucial to double-check the recipient list before sending an email. Additionally, ensuring that presentations or decks are properly formatted can prevent miscommunication.

Viewers are encouraged to embrace their unique career paths without comparing themselves to others. It's important not to get discouraged by the pace of opportunities, as everyone's journey is different and spans decades. The private equity sector in India is rapidly growing, suggesting a promising future for those involved. A long-term perspective on careers—viewing it as a marathon rather than a sprint—is essential; short-term setbacks or delays should not be overly concerning.

The closing remarks express gratitude and satisfaction with the event, highlighting a positive experience for both participants and organizers. There is an emphasis on hope that everyone enjoyed their time together, reinforcing the sense of community created during the gathering.