Investment Banking to Private Equity: The Most Sought-after Exit Option

A career in private equity is the first thing that springs in the mind of a private equity professional when asked about exit opportunities. It is the most sought after IB exit opportunity for many finance graduates working in investment banking. Many opt for the investment banking profession with an ambition to join a private equity industry after two or three years.

What separates investment banking from private equity? Why there is more inflow to private equity firms from investment banking firms?

Let’s understand the differences between these two top financial careers and know how to make a switch over from investment banking to private equity profession.

Investment Banking vs Private Equity

The work profile in investment banking involves pitching deals, executing deals, researching, delivering packages, and helping managing directors for deal preparations. On the contrary, professionals at private equity are involved in the screening of potential investments, executing deals to make investments, managing portfolio companies, and helping to sell portfolio companies.

In investment banking, you represent companies and help them to raise capital or sell them. You earn a commission from the selling price. While in a private equity job, you buy underperforming companies, improve them and sell them in a few years for a profit. Both kinds of deals give you money.

The difference is that the ceiling is higher in the case of private equity deals. If the company’s assets price increases by 2x, 3x, 5x, or more, the PE investor can reap all the profit.

Moreover, the PE industry seeks experienced professionals. Investment banking is one such field where you can gain preliminary experiences that help to take forward your career in private equity.

The professionals also argue that the lifestyle in private equity is better as compared to investment banking.

Above all this, the real pay advantage in private equity is the ‘carried interest’ as you step up your career ladder.

In brief, the life style, advanced work profile, and compensation package attracts investment banking professionals to move ahead with their career in private equity.

Let’s see how to move from investment banking to private equity.

Investment Banking to Private Equity: Career Switch-over

Investment banking leads to several exit opportunities. It includes private equity, venture capital, hedge funds, asset management, corporate finance, corporate development, startups, and growth equity. Above all this, moving up in investment banking is also the best career option. As you move up to senior positions, the benefits and career profile is appreciable. This is another thought not to ignore.

Let’s see two live examples and understand how they made this switch over in their career.

Example 1:

An investment banking professional by name ABC started to pursue private equity opportunities for start dates in summer after completing one year in investment banking. He was working in the M&A group at a bulge bracket firm.

He started the process by accumulating the contact list of top US private equity firms. Then, networked with alumni from his University and focused on industry sectors of companies having simple business models to understand consumer products business.

Then, he started to reach out to headhunters and set up an introductory meeting. The first meeting separated him from all other competitors as he had a list of PE firms that sparked his interest, showcased the seriousness, and dedication toward achieving a career in private equity. Simultaneously, he got himself prepared with basic interview questions on investment banking and private equity as well, practiced to build a statement, M&A models, and LBO models.

With this, he succeeded to get a first round of the interview which went smoothly where he shared his background, career and personal goals that fetched him the second round of interviews. During his second round, he was given a case study and asked to forecast business assumptions, and answer 10 qualitative questions on the business. Then, he was called by the firm for an interview in person. The interview went well and he got appointed. The process took four months from start to finish.

The secret here is he was prepared for PE interviews before he got in touch with the headhunter.

Example 2:

These are key pointers from a former Associate at Goldman Sachs. According to him, it is necessary to get it to touch with headhunters and not directly with the private equity firm. The PE transitions should go through the headhunters. Cold calling yields fewer results. At times, it may work against you as the headhunters will try to push some other candidates as they find no commercial value with you.

Headhunters usually approach around October – November, May – June cycle. Get your online resume or profile updated with search-friendly keywords. Sometimes the head hunters may reach you through your work email id. It is recommended not to reply or continue conversations through work email id.

The initial headhunters meeting should be considered as the first-round interview though it could be an informational interview. So, be prepared to showcase your abilities. They reserve the best roles for top PE firms and be the one to grab it. Many headhunters could be former bankers and they know to grill you with all technical aspects of the firm. So, ensure that you are ready for the meeting.

Be prepared to answer about your deal experiences, modeling knowledge and skills, investment case studies, and more. I recommend you to get prepared for at least 6-8 months before you make a move.

You may have to attend interviews from other firms and everything will take around a few months. Do not get nervous in such a way that your colleagues get suspicious of your behaviour. Demonstrate an extreme level of metacognition during the whole process.

This would fetch you a job in PE firm at the earliest.

Conclusion

Be certain about your long-term goals. Proceed with caution. Be well-prepared. The preliminary work culture in both disciplines is more or less the same. If it does not interest you at investment banking, it’s not going to be your cup of tea at a private equity firm too.

It is recommended to understand various fields during internships in the first year of the job. Identify your zeal and move accordingly to succeed in the profession.