What is Private Equity?

Private equity firms acquire and invest in companies by borrowing debt and injecting equity, typically raised from limited partners who have invested in a private equity fund. Private equity firms then privately hold these companies and seek to improve operations and financial performance, generally investing on a 4-8 year timeline. Most private equity transactions take place through a leveraged buyout (LBO).

Different focuses of private equity include growth equity, which focuses on fast-growing companies, and buyouts which focus on majority control transactions.

Understanding Private Equity Fund Types

Fund Sizes In-Depth

Mega Fund (MF): This definition varies significantly and mainly refers to massive multi-asset class platforms. I'd say the bar is someone who can raise a $15B-$20B Buyout Fund. Mega Funds are well established firms that have historically raised and can presumably continue to raise large pools of deployable capital. LPs to MFs include large endowments, pension funds, sovereign wealth funds, and other large asset managers seeking private equity exposure.

From Mega Funds, we trend down to Upper Middle Market (UMM) → Middle Market (MM) → Lower Middle Market (LMM). I'd note that some traditional "middle market" funds can now raise $10B+ funds, so arguably we can call them "Upper Middle Market".

Middle Market (MM): The size of Middle Market funds and checks can vary significantly. I usually like to think of the Middle Market as the $200mm-$1.5B EV range, but portfolio companies can certainly tick up higher to an ~$2B-$3B EV or so depending on the strategy. MM Funds are usually funds who have enough of a reputation to invest in the MM range and have a strong level of sophistication when it comes to building up into "blue chip" companies through formalizing a business, engaging in strategic actions like tuck-in M&A, supply chain rationalization, and starting to crack the whip on procurement and operational synergies and savings.

Lower Middle Market (LMM): I usually think of LMM funds as groups that don't really invest past $25-$30mm of EBITDA, or north $200mm+ of EV. A lot of LMM funds I've seen typically have investment criteria where Adj. EBITDA ranges from $5mm-$25mm. <$5mm EBITDA is typically where SMB Buyers or Family Offices play, as $3mm-$5mm EBITDA is tough for most LMM Sponsors.

Growth Equity: While not fitting the parameters of a traditional private equity firm, a growth equity fund will target fast growing companies and provide them with creative capital solutions in order to continue to spur their growth. The industry can vary from high growth spaces like Tech, Consumer, Healthcare Services, Life Sciences, and Emerging Energy Transition. These are companies that may or may not meet the same parameters that a venture capital firm may be looking for. It can be a late-stage startup, or it could be a company with somewhat similar profiles to traditional LBO candidates.

Career in Private Equity

If you join a Private Equity firm, you'll be responsible for putting together investment materials regarding new deals, with a lot of time spent in PowerPoint and Excel. This will be an extension of the skills you learned in investment banking, with a focus on assessing whether your firm should invest in this opportunity.

Notable Private Equity Firms

There are several hundred private equity firms throughout the United States, but breaking into the elite institutions, such as "megafunds" require an elite background.

These megafunds include Blackstone, Apollo, KKR, TPG, and Carlyle, who manage hundreds of billions of assets and engage in multi-billion-dollar buyouts.

There are plenty of other larger funds that aren't quite in the megafund status, but also write massive checks, include Vista, Silver Lake, Francisco Partners, Thoma Bravo, Platinum Equity, Roark Capital, Veritas, Warburg Pincus, and CVC.

A full list of NYC based private equity firms is available here.

Private Equity Recruiting

Generally, Private Equity firms from Megafund to Lower Middle Market ("LMM") want Investment Bankers to take on Associate roles. Alternatively, ideal candidates may be Associates or VPs who recently graduated from a top MBA program and spent the past summer successfully interning with the Company.

This is why many prospective finance professionals who miss Private Equity in a traditional path, end up going back to school for their MBA to advance their education and try again for Private Equity recruiting or Investment Banking recruiting.

Career Path in Private Equity

The typical career path in Private Equity starts following a 2-3 year stint in Investment Banking. However, some Private Equity firms have started hiring analysts directly out of school. Once you're a PE Associate, you're there for 2-3 years before you either get fired, promoted to Senior Associate, or told to go get your MBA.

Following your MBA, you could come back to the same firm as a Senior Associate or Vice President, or join another prestigious PE firm. The ultimate goal over time is to become a managing director or Partner, which is something you could hit in your mid 30s and want to hit by your early 40s. Your goal is eventually to be compensated via carried interest and then recognize a significant amount of value from the carry once it vests and the fund returns capital to partners.

Hours in Private Equity

Within Buyside Hub, we've measured in detail the typical amount of hours in private equity through hundreds of compensation datapoints. Investment Bankers shouldn't be surprised to see hours that are somewhat similar to their IB hours. They may not be doing as many 2am/3am nights but midnight and beyond nights will be a common occurrence at some institutions.

For industry analytics, with details on the average and median hours that private equity investors work, please view here.