Private equity is one of the most competitive fields to enter, requiring candidates follow a specific pathway and execute flawlessly along the way. If you’re interested in a career in private equity, you can’t begin preparations soon enough.
But if the most common avenues of entry are closed off for you, we’ll cover some alternatives that can still get you in the seat, albeit with a bit more hustle.
The Traditional Path
Let’s first talk through the most well-trodden path to private equity, and the only path that works for the largest firms. Bear in mind this is also the most competitive and regimented path, so you’ll need to skip to the next section if you’re more of a non-traditional candidate.
Candidate Profile
The standard profile that private equity firms will look for is a candidate with a top undergrad degree, high GPA, and investment banking experience. With few exceptions, this is the only way in to the largest firms.
There is some opportunity available for candidates with an MBB consulting background. This is particularly true at firms that have a track record of consulting hires, such as Charlesbank.
If you’re an undergraduate and interested in private equity, the highest probability path will be to focus your current efforts on increasing your GPA as much as possible and recruiting for the strongest investment banking group possible (both for summer analyst and full time roles).
Headhunter Meetings
Once you’ve secured your investment banking analyst position, headhunters will proactively reach out to you to schedule initial conversations. They use these conversations to get a sense of what types of opportunities you’re looking for.
You should be as specific as possible because it shows that you’re an educated, serious candidate who is more likely to convert into an offer. Remember, the headhunters are compensated based on accepted offers, so they want to get someone in the seat as quickly as possible.
Rather than saying you’re interested in private equity roles (as opposed to hedge fund or VC), add some more detail. For example, you’re interested in middle market buyout roles in New York with a focus on industrials. In my experience they’ll show you most opportunities anyway, so no need to worry about getting too specific.
Concurrently, be sure to begin your interview preparation. You should be well-versed in standard behavioral and technical questions, as well as familiar with the intricacies of LBO modeling.
Sit tight after the initial headhunter meetings and wait for them to reach back out to you. As soon as the year’s recruiting kicks off (known as on-cycle), they’ll call you up with offers to interview.
These interviews are for private equity positions that will start after your two-year investment banking analyst stint. Yes, it’s ridiculous, but you’ll be interviewing shortly into your first professional job for a position that won’t start for another two years.
Be prepared to interview at a moment’s notice (another reason to start preparation early). The on-cycle process is quick and brutal, with offers going out the same day. You get one chance to impress, so you should be ready to take advantage of it.
However, if you either didn’t get any on-cycle interview offers or you couldn’t convert, don’t worry. After the on-cycle mayhem dies down, the off-cycle process begins. These interviews are often more oriented toward middle market firms. They also take place over a longer time period, with processes potentially spanning weeks rather than a day.
You’ll continue to see off-cycle roles pop up through your analyst stint. Some will be for positions starting two years out, while others will be for a year out or even immediate hires. Don’t get stressed, because more opportunities will come along.
Non-Traditional Paths
Don’t worry if you didn’t tick every box that’s required for the more traditional pathways into private equity. There are other ways to make it happen if you really want to.
Find a Way Into Investment Banking
The first option here is a roundabout way to get yourself onto the more traditional recruitment cycle. This is applicable for candidates that are early in their career, but for whatever reason aren’t currently in investment banking (or top consulting groups).
If you’re a year or two into your career, try to lateral into an investment banking analyst position. You’ll likely start as a first-year analyst, but that’s not a big deal because you’ll have a lot to learn anyway.
Note that this can be quite difficult if you’re not in a closely adjacent role to banking. Big 4 transaction advisory is probably the easiest transition, followed by capital markets roles, corporate development, and corporate finance.
Start networking, cold Email, and be relentless in you pursuit of the lateral. Prepare well so you convert interviews, because they may not come around that often.
The ease or difficulty of this transition can also fluctuate based on market conditions. Tight job markets and stretched junior talent pools open up more opportunity, but the opposite is true if economic conditions deteriorate.
After you land a role, flip back up to the first section and get your headhunter meetings sorted. You’ll probably be cut off from mega funds and upper middle market funds, but you’ll have broad opportunity across middle market private equity.
Post-MBA Investment Banking
A variation on the prior path is possible if you’re a bit further on in your career. Rather than trying to break into investment banking as an analyst, go get an MBA and come in as an associate.
The pathway from MBA into investment banking is significantly easier. Banks hire you as a career banker, rather than an analyst that is likely to exit. Any top MBA program should open up the requisite doors and guide you through the process.
After you enter banking as an associate, you’ll have an uphill battle to break into private equity. It’s important that you get into the strongest bank and strongest group possible, because this will only improve your chances.
Now you’ll need to reach out to private equity head hunters on your own. You won’t be on their radar otherwise, because they’re only focused on analysts. You’ll need to have a tight story on why you’re interested in private equity (and expect to get grilled).
This path will severely limit the type of private equity role available to you. The most realistic options at this stage are lower middle market and smaller middle market firms. As discussed below, this is not necessarily a bad thing.
The one exception is for banking associates who have developed strong relationships with buy-side clients. I’ve seen situations here where banking associates were able to move to much larger funds than would otherwise be the case, though this is very rare (and they were strong associates at top banks).
Corporate Development
The next best option to get into private equity is via corporate development, particularly if you’re able to land a corp. dev. role at a private equity portfolio company.
It’s a deal-oriented position requiring some level of strategic/investing thought, so is not totally out of left field. However, your technical skills will be significantly below that of an investment banker, and private equity firms know this.
If you take this path, it’s less likely that you’ll have success from headhunters. They probably won’t take the time to speak with you or show you many opportunities. The fact is that they have a high number of more qualified investment bankers that have a higher probability of converting, so it doesn’t make sense for them to spend time with corporate development candidates.
That’s fine, but it does mean you need to put in more work on your own and ‘hit the streets.’ Start networking with anyone and everyone, send out cold Emails, even pick up the phone if you have to.
You’ll be wasting your time at any mega fund, upper middle market fund, or established middle market fund. Focus on the lower middle market and first-time funds. You’ll have a leg up if you find a fund with an industry focus that aligns with your current corporate development role.
Be aware that this path simply may not be possible. It’s certainly worth a shot, but you’ll need to be comfortable with the fact that you might not get there at the end of the day. But have no fear, there’s still one more door open…
The Private Equity Operating Partner
The last option, if all else fails, is to attempt to break into PE later in your career as an operating partner or senior advisor. There’s no uniform path here, but these roles generally require specialized expertise in an industry or niche.
Private equity professionals are experts at evaluating investments from a financial standpoint, but operate at a very high level. An industry insider with specific expertise and management chops is an invaluable find and can make or break an investment or thesis.
You’ll likely need to climb to the senior executive level within an industry. Through that process you’ll accumulate a wealth of valuable knowledge that private equity firms will seek out.
This type of position varies by firm. Some firms recruit an executive to help search for an acquisition, and then install the executive as CEO or Chairman post-acquisition. Other firms will keep the operating partner or senior advisor in-house as a sort of consultant, providing insight across new investment opportunities and portfolio company operations.
Whatever form the position takes, you’ll likely receive a carry allocation or significant equity incentives. It’s also worth mentioning that while you won’t be a typical investment professional, you will have skipped the soul sucking existence of life as a PE associate.
Given that most associates never make it to partner, either through choice or an inability to stomach the lifestyle, the operating partner route starts to look quite compelling. It really is the definition of playing the long game, but you might find this path provides the best outcome.
Special Mention: Private Equity Analyst Programs
It’s also worth touching on increasingly popular private equity analyst programs. These are most common at mega funds and select upper middle market firms, offering an opportunity to jump straight to the buy-side out of undergrad.
Recruiting is similar to that of investment banking, with full-time analyst positions secured post-junior year internship (whether at a bank or PE shop). The most desirable of these programs is highly competitive, and an option only for standout candidates.
These analysts may have an opportunity to stay as an associate with their current firm, or they can recruit during the standard on-cycle process. Their early PE experience is very desirable, so all options remain open. I’ve had recruiters tell me that many private equity firms shy away from hosting analyst programs because of the degree to which their analysts are poached by competitors after they’ve invested the time and effort to train them.
There is something to be said for the broad experience provided by a structured investment banking analyst program, but if you know you want to be an investor you might as well try to get in as soon as you can.
Mega Fund vs. The Lower Middle Market
Private equity firms are often grouped into classifications based on their size, namely lower middle market, middle market, upper middle market, and mega fund. Depending on context and who you talk to, the grouping of each firm can be based on fund size or deal size.
Mega funds and upper middle market firms are traditionally thought of as more prestigious. These firms work on bigger deals, have more resources and name recognition, and offer the opportunity for higher pay.
As a result, positions at these firms, particularly at the associate level, are significantly more competitive than middle market or lower middle market roles.
We’ve already covered the standard profile of candidate that private equity firms prefer, but even within this subset of people there can be subtle differences that impact PE recruiting outcomes.
As a general rule of thumb, the better the prerequisites are, the better the private equity opportunities available.
A candidate from Harvard with a 3.9 GPA and analyst stint at PJT will have their pick of PE interviews, while a candidate from TCU with a 3.2 GPA and analyst stint at Raymond James will face a significantly more difficult battle.
Both candidates can likely do the job equally well, but the sheer level of competition cuts off the top firms to anyone but the most elite candidates.
But, there’s not necessarily anything wrong with not working at Blackstone. In fact, you might have a better experience. Mega funds are known for being rigid, hierarchical, and working you to the bone.
You might learn more at a middle market firm, while also have a higher probability of climbing the ladder and keeping your sanity. A career in private equity is a marathon, not a sprint. There’s a lot to be said for finding a firm that let’s you take responsibility early, isn’t run by psychopaths, and actually wants you to stay on and develop into a senior member of the team.
However, it’s worth noting that it’s usually easier to move downstream than upstream. You’ll have many more options for partner-track positions coming out of Warburg than you will at your Dad’s golf buddy’s two-man shop in Nashville.
If you’re the type of person that values optionality and is generally risk-averse, take the mega fund route if you can. If not, you might find some real upside at that two-person Nashville fund.