Private equity is similar to investment banking. In fact, it is a large part of investment banking. It is less known, as it doesn’t involve stocks or shares, usually associated with investment banking. Private equity is associated with funding and financing privately held companies.
Put simply, private equity firms help small and large companies by financing them in times of need, which is usually restructuring, buyout, or growth. Based on these circumstances, private equity is categorized as–
- Venture Capital: When companies require money for new initiatives, projects, growth plans, and other ventures. Private equity firms offer investment in exchange for certain amount of equity.
- Buyout: Under this private equity firms buy large number of shares of a company, so that they gain complete control of business.
- One time investments: Private equity firms often invest in companies under special situations to make returns. For instance, distressed companies, changes in government regulations, sensational trends etc.
Investments in private equity are made with the aim to increase their value and get profitable return.
How do private equity firms operate?
Private equity firms can run privately or as a small department in a large investment bank. They are responsible for buying and managing equity for companies.
Generally, these companies sit along with board members of company and oversee some part of management task. However, in most cases, private companies in times of distress or financial crunch reach out to them.
Private equity helps companies recover from slumps by pumping in huge amount of money. Of course, there is huge risk involved in case the company doesn’t recover or faces even more losses. However, private equity has given fat returns, which makes it a lucrative career option.
On top of this, more-than-generous relief on tax levied on the profit makes it even more desirable.
How to start a career in private equity?
Usually, MBA candidates with a finance background are preferred for roles in private equity. However, today, firms are open to candidates with strong analytical and logical aptitude. Other than this, good knowledge of private equity is required.
Today, people from finance background are taking private equity certifications to further pursue their career in private equity. It is one of the most lucrative career options in finance after all.
What skills do you need to work in private equity?
On a basic level, private equity professionals are required to be strongly analytical in their approaches and good with numbers. Further, skills required are –
- Attention to detail
Private equity requires dealing with large amount of numbers and constant number crunching, missing out a small detail can lead to losses of billions. Hence, it is expected of private equity professionals to have strong attention to detail.
- Strong communication skills
Professional in private equity are required to talk to multiple stake holders, industry leaders, business owners, and others throughout their day. Good and clear communication skills are mandatory for this.
- Critical thinking
In private equity, decisions are required to be made every day. Weighing pros and cons of a situation is a usual task. To be successful in private equity, one needs to be a strong critical thinker.