The UNTOLD SECRETS of Working in Private Equity!

private Equity is known to be one of the sexiest Industries in finance and it got a little bit hotter because I'm not sure if you've heard Kim Kardashian launched her own private Equity Firm and recently hired the former CEO of Burberry but as with any industry that's not just the good there's also the Bad and the Ugly and so that's what we're going to talk about in today's video in relation to private equity and if you're new to the channel welcome my name is Ben I'm a former JPMorgan Investment Banking analyst and before we get started just wanted to let you guys know that a lot of the information I got was through speaking with a lot of my friends who worked in private Equity I'm going to be going over three good three bad and three ugly aspects of private equity and let's start off with the good stuff [Music] the first good aspect and probably the most well-known as well is just that your compensation is going to go through the roof you'll be on the roads to earning millions and millions of dollars if you can stay in the industry while also keeping your exit opportunities wide open to be a top one percent earner in the United States you need to be earning about six hundred thousand dollars a year and most private Equity Associates right after they leave their two-year Investment Banking stint usually we'll be earning about 250 000 to 400 000 a year and the numbers just keep growing more and more as you become more senior this is because of something called carried interest or carry which is basically profit share from your fund's performance and this compounds over time and if you want to learn more about private Equity compensation feel free to check out this video right here in regards to exit opportunities because you gained so many skills relevant to so many business roles your world is kind of your lucrative oyster you can go into industry a hedge fund Business School Corp Dev whatever you kind of want that's related to business or Finance the second great thing is that you're are able to earn all this money while also having a more predictable work-life balance now of course in private equity for the most part you're going to be working more than the average person pretty much every week but with that said in comparison to banking there are three main key differences the first is that in banking you're servicing clients so you're on their schedule whereas in private Equity you're the client you're the one calling the shots so you're able to manage schedules better and then the second is that you're able to have a lot more stronger relationships and private Equity between Associates and VPS and partners because you over time there's not as much turnover whereas in banking analysts leave all the time so MDS kind of just treat them as people who are dispensable and then the third thing is there's a lot less face time in private Equity if you do your work and get your stuff done then you kind of you can just kind of leave the office whereas in banking you don't really often for most groups want to leave unless your senior Bankers have already left with all this said if you're on a live deal then it's game over GG you're gonna have to work super hard and it's gonna just be a mad Sprint until your investment closes and we'll go over more of this in the ugly section of the video the third good aspect of private Equity is that the work is intellectually stimulating and the business skill set you build has both breadth and depth as an investor you're putting real Capital to work which means there's a lot more at stake and so for example in banking while you might project on an annual basis for evaluation model and PE you may have to model revenue on a month-to-month basis and look into detailed items like every employee's salary to build projections for your income statement that feeds to your lbo model after you model you'll then have to conduct very thorough diligence into the market looking at things like the total adjustable Market size competitors and customers and then also do a deep dive into the company itself looking into things like the tech the company uses the HR department sales teams and a whole lot more if the investment thesis is strong and passes through investment committee you then work with lawyers Auditors Banks and sometimes consulting firms to take care of the legal tax financing and other miscellaneous things you need to do in order to close the deal then finally when your investment becomes your portfolio company or portco it now becomes your baby and you have to learn how to turn a business around which requires skills and operational improvements strategic planning leadership communication and more now if you're watching this video because you're interested in private Equity then you're definitely going to want to check out this newly announced private Equity certificate investing program that's being offered by Wall Street prep and Wharton which is where I'm currently getting my MBA this program is sponsored by top firms like Blackstone Carlisle and KKR and over eight weeks you can learn at your own pace through this online course that's taught by Wharton professors Wall Street preps PE program director and real PE investors including David Rubinstein the founder of Carlisle and Martin brand the head of North America PE at Blackstone who will cover topics like the PE deal process valuation how to think like a private Equity professional and more by completing the program you also unlock access to the alumni member database fireside chats with PE investors and exclusive networking events with the world's top private Equity Headhunters this program runs twice a year in the spring and fall and be sure to use my code rare liquid regardless of when you're signing up in order to get 300 dollars off and I'll leave a link to all of this down in my description below alright now let's move on to the bad stuff the first is that you're doing everything for money and you also are stuck with golden handcuffs unlike most other companies that people enjoy working for private Equity firms don't really have a mission except if that mission is to get very very rich and make your investors very rich because in private Equity returns are more important than anything else besides the mission or lack thereof in private Equity you also get stuck with these golden handcuffs because of carry which usually takes about five years to best and so when you start working at a private Equity Firm and you start first getting carry it takes at least five years for you to actually see those profits from your fund's performance and so usually that carry will also exponentially grow over time and so you're leaving more on the table if you ever leave so it's really really hard to leave a private Equity Firm the more senior you get so even if you kind of hate your job the culture the work you're doing at a private Equity Firm it's also really hard to leave because you're going to leave so much money on the table you make it hard to believe you the second bad aspect of private Equity is that you're typically not looking at the sexiest companies and a lot of times you're going to be doing a lot of work looking into companies and industries that are just totally kind of boring and then you'll see how your deals just not go through a lot of times because private Equity is just thought of as a glamorous industry you might from the outside looking in think that you invest in sexy companies but to a good private Equity investor the sexiest companies are just boring companies that have good stable predictable cash flows this is in stark contrast to private equities sister by side industry Venture Capital where you're always looking at the hottest Trends and hottest companies to invest in and also to a certain extent hedge funds as well because depending on your firm's strategy at a hedge fund you can kind of invest in hot sexy companies as well or you can invest in kind of boring ones I guess that's also true for Venture Capital but typically private Equity tends to be the most boring out of the three buy side jobs that are like the Holy Grail of Finance the third bad aspect of private Equity is that because there's so much to do there's always a lot of process involved with anything that you do in private Equity so it's not easy to zoom out and take a look at the big picture instead of kind of as they say getting lost in the sauce sometimes investors within PE May kind of fault themselves for doing too much and having analysis paralysis because there's just so much information and data you have to process in such a short period of time and so you can kind of find yourselves thinking that you're not really being efficient with your investing process and not really taking a step back and thinking at a high level you know instead of doing all this diligence and looking at all these details of every single tiny line item just thinking more from a big pictures per perspective is this a good investment or not this is in stark contrast to hedge funds where you're building models with much fewer assumptions that are much more high level and you're investing much more efficiently and breaking things down more into first principles thinking and so if you're thinking about you know should I go into private Equity or a hedge fund this is one of the key things you should really just keep in mind private Equity is very thorough very very detailed you look into everything and you at times can kind of get lost in the details whereas in hedge funds you're making much more quicker decisions and looking things at a higher level and so those two buy side Industries are commonly compared against each other and this is something to keep in mind for both if you're interested in breaking into either of those Industries you first actually usually have to go through Investment Banking and I'm actually building on my own how to get into Investment Banking course that's going to go over behaviorals technicals resume cover letter everything you need to know for recruiting feel free to check that out in my description down below and also selling the resume and cover letter that got me into JPMorgan if you want to check that out at rarelyquidcareers.com all right now let's go into the reason you probably clicked on this video which is the ugly aspects of private Equity the first ugly aspect of private Equity is that shitty portfolio companies or poor codes can ruin your life because you have so much skin in the game to read you a quote from one of my friends who works in private Equity everyone glorifies doing deals but they don't think about if the company goes to because you're responsible to turn it around and it's your problem yikes in in private equity in the long run you're bound to make a bad investment at some point and if you're stuck with a bad Port Co then you might have to put out fires every single quarter and that might be all you do for one to three years and you're just kind of painstakingly trying to turn this business around where the industry might just be turning against you there's so many fires to put out at the business and so it can really ruin your life if you have to take care of a shitty Port coat as you get more senior bad Investments also are magnified and mean way more because you're the one who kind of gave the final sign off for a bad investment and that can really sink a fund's returns this relates to the second ugly aspect of private equity which is that there is a ton of pressure for you to be on your A-game all the time every day no matter what because there's really an up or out culture in private Equity you always have to be at the top of your game in everything that you do both qualitatively and quantitatively so starting off with the qualitative you're going to be interacting with a lot of external parties Banks lawyers other investors and Etc and if you ever see send out an email that has like proprietary information or something like that that would be an unacceptable mistake probably won't get fired but you will probably get a lot of kind of uh angst from your senior investors because of that and the thing is that everyone's tired everyone makes mistakes but in private Equity those mistakes are just much more magnified on the quantitative side unlike in Investment Banking as an analyst where your associate goes into your model and checks every single cell to make sure that everything's correct as an associate in private Equity you're responsible for the model and no one's really going to be checking everything and so let's say you subtract an adjustment instead of adding it back and you propose an irr of like 25 instead of 30 and somehow somebody catches it later then your reputation is going to be really really affected by that now everyone afford of course is going to make mistakes and you're not going to be immediately fired but it really private Equity is a lot more cut throat and so also as you get more senior at the firm if you're like bringing in bad deals or you're not making Investments then it's really an upper out culture the third ugly aspect of private Equity is that the worst of PE is worse than the worst of investment banking which pretty much just means that it's the worst when you're sprinting to close a deal there's just so much to do in such a short period of time so for example if you're working on a deal you'll have to build a financial model with no mistakes work with lawyers on a dock called the purchase agreement work with Auditors on a quality of earnings report diligence to company across many many departments diligence the industry with a consulting firm and work with banks for debt financing and all of this is done amongst one associate one VP or principal one director and one partner so like four people and so in private Equity even though as a whole you can manage your lifestyle a little bit better because you can predict what's going to happen when you're on a live deal all bets are off you're probably going to be work working banking hours but also have the intensity of private Equity because you're just going to have to make sure that everything is super thoroughly done and perfect now I hope none of this has scared you because I honestly have a lot of friends who are in private equity and there's a lot of ups and downs but if you really like finance a lot but then I think private Equity is really a great industry and if you want to learn more about it then I have a ton of videos in the playlist that you can check out and so that pretty much concludes the video in the next screen you're going to see a video about the private Equity industry overall and what it is so feel free to check that out if you're interested that's it thank you guys all so much for watching hope to catch you all in the next video thanks so much guys and peace out [Music] thank you

Channel: rareliquid

Views: 61,922

Keywords: private equity, investment banking, private equity fund, private equity firm, private equity investing, private equity explained, private equity analyst, what is private equity, private equity salary, private equity interview, private equity interview questions, private equity associate, private equity and venture capital, investment banking analyst, private equity fund investing, private equity explained simply, buyside, hedge fund, finance, blackstone, carlyle, goldman sachs

Id: CU4EcshCHUI

Length: 12min 10sec (730 seconds)

Published: Thu Aug 10 2023