In its broadest sense, private equity is an investment derived from a nonpublic entity, or private company. These investments differ from those in publicly traded companies that allow investors to purchase shares of stock. Private equity (PE) is much bigger; these investors don’t just invest in stock—they buy entire companies.
In modern private equity, a pool of capital is created from private investors, ranging from university endowments and pension funds to hedge funds, Wall Street investment banks, and high-net-worth individuals. The managers of these private equity pools, or funds, then put that capital to work, generally by purchasing private or public companies, “fixing” them so they generate more revenue, cash, and earnings, and then “flipping” them by selling the improved company to another buyer or taking it public on the equity markets. Additionally, private equity firms earn revenue by collecting transaction and monitoring fees for consulting, management, and other services provided to the companies they acquire. Historically, these fees have provided a lucrative revenue stream that augmented the firm’s share of investment gains on deals (the key source of profits for PE firms). For example, The Carlyle Group LP, KKR, and Apollo Global Management LLC reported earning $9 billion in management fees from their private equity businesses between 2008 and the end of 2013, according to the Wall Street Journal.
Private-equity firms invested more than $1 trillion in communities across the United States in 2021, according to the American Investment Council (AEC). Since 2017, the industry has invested in more than 32,000 businesses. The median full-time U.S. private equity sector worker earned approximately $50,000 in 2022. Here is the breakdown of U.S. private equity sector employment in 2022 by type of economic activity (according to the AEC):
- Business services: 36 percent
- Personal services: 26 percent
- Manufacturing: 13 percent
- Retail trade: 7 percent
- Information: 6 percent
- Wholesale trade: 4 percent
- Transportation and warehousing: 3 percent
- Construction: 3 percent
- Utilities: 1 percent
- Mining, quarrying, and oil and gas extraction: 1 percent
Private equity investments aren’t just about buying and selling companies, however. Many private equity firms invest in debt, helping a company salvage itself by loaning it money in exchange for an equity position or another form of return. Some private equity firms target funds at startup companies—these are called venture capital firms, though a diversified private equity management company will often include venture capital activity alongside acquisitions and debt purchases. Venture capital investments are often made in exchange for equity in the private company that the firm hopes will turn into big profits should the startup go public or get sold.
Not everyone is a fan of the private equity industry. Critics of private-equity firms believe these firms are bad for companies and employees in the long run because they often focus on streamlining, restructuring, or liquidating inefficient or outdated businesses, which often results in people losing their jobs. “The ways in which private equity goes about this restructuring can raise a number of concerns, over such things as layoffs and furloughs for employees and degraded services for customers,” according to ProPublica. “Critics also worry that private equity firms weigh down acquired companies with substantial debt from the money borrowed to finance the purchase.” The American Investment Council counters that “the private equity industry benefits investors, companies, workers, and communities. Investors gain from higher returns and less volatility than public markets. Companies receiving private equity investment benefit from access to capital as well as business mentorship and expertise. Workers benefit from stronger companies that are committed to growth. And communities across the country are bolstered by private equity investment that helps build sustainable companies and jobs.”
The majority of private equity firms are headquartered in the United States, but opportunities are found throughout the world (especially in Europe). There are nearly 7,000 firms worldwide (with approximately 5,000 located in the United States). Eight of the top 10 firms in terms of fundraising totals are located in the U.S., according to Private Equity International, a global news service that focuses on the PE industry.
Since the early 2000s, private equity funds have grown tremendously. In 2022, private equity firms worldwide managed $4.4 trillion in assets (up from $2.83 trillion in June 2017), according to McKinsey & Company. Private equity fund holdings are expected to increase at a compound annual growth rate of 10.2 percent from 2021 to 2027—reaching $7.6 trillion in valueby December 2027, according to the alternative investment research firm Preqin, overtaking hedge funds as the largest alternative asset class. “But it’s not all good news: the fundraising marketplace is more crowded than ever before, making it difficult for fund managers to stand out, and for investors to find the right funds for them,” says Christopher Beales, executive editor of the 2020 Preqin Global Private Equity and Venture Capital Report: “Dealmaking is equally challenging, as high asset pricing is putting pressure on future returns. The industry is fundamentally strong, but 2020’s waters will be tricky to navigate.”
Naturally, when dealing with billions of dollars and major corporations, private equity firms need a wide variety of talented employees. And that’s where you’ll come in. Private equity firms employ some of the most experienced talent in corporate America, and their personnel needs are as broad as they are deep. Whether you’re fresh out of undergrad or a seasoned corporate veteran, chances are you can find a home with private equity firms. And in doing so, you’ll have a hand in making billions for your investors while guiding large corporations, and the thousands of people they employ, through major changes and improvements. General partners (which are often the owners of the firm), researchers, and analysts are the major players in this industry, but firms also need sales, legal, compliance, marketing, investor relations, information technology, and office support workers. Those with bachelor’s degrees can qualify for administrative support and other entry-level jobs at private equity firms, but top-level PE careers require an MBA. The industry is also seeking workers with degrees in law and accounting, as well as in engineering and science-related fields.
- Excellent pay. Private equity professionals had average earnings (base pay plus bonus) of $315,000 in 2017, according to the 2018 Private Equity and Venture Capital Compensation Report. Those without MBAs received $264,464. But keep in mind that most new hires don’t make that much money. You’ll start in the $100,000 to $120,000 range—which is no small potatoes.
- Strong employment outlook. Job opportunities for financial analysts are expected to grow by 5 percent from 2019 to 2029, according to the U.S. Department of Labor, or faster than the average for all careers.
- Opportunities for experience. If you work at a “generalist fund,” you’ll get the chance to learn about a wide variety of industries—from pharmaceuticals and information technology, to oil exploration, consumer goods, and air transportation. You can continue to be a generalist throughout your career or develop specialized knowledge of a particular industry that will increase your marketability with specialty PE firms or hedge funds and investment banks.
- Opportunities to transform a company. If you work in a high-level position, you’ll get the chance to use your expertise to improve a company and make it a more attractive candidate for an IPO or a sale.
- Stimulating work environment. You’ll be close to the action as your firm makes deals and buys and sells companies. Your colleagues will be well educated and creative, and each PE project provides a different set of challenges that you must overcome.
- Tough to break into the industry. It’s hard to land an entry-level job unless you attended a top-tier college or have related experience in the hedge fund or investment banking industries. Many top firms require applicants to have an MBA (or be pursuing an MBA).
- Occasionally repetitive job duties. Private equity firms are often small, so you may find yourself taking on the same responsibilities over and over again. Yes, they’re responsibilities worth millions, but they can also be monotonous.
- Limited opportunities for advancement at small firms. The folks sitting at the very top of the firm aren’t going anywhere—their names are figuratively, if not literally, on the door of the company. So your chances of advancing at your firm may be low—but you can always start your own firm or move into a career in the investment banking or hedge fund industries.
- Sometimes-stressful work environment. The breakneck pace and crisis management required of many private equity employees may wear thin. Even the most jaded Wall Street operator will cop to wanting to spend more time with his or her family after a while.
- Not much diversity. Women held only 10 percent of senior-level positions at private equity firms in 2019, according to Preqin (an alternative investment research firm)—a percentage that’s significantly lower than their representation in the overall U.S. population. Ethnic minorities are also vastly underrepresented in the PE industry. Only 13 percent of entry-level PE and 5 percent of senior-level professionals are Black or Latino, according to McKinsey & Company.
- Negative view of the industry by the public. Get ready to take some heat from your friends and family. Critics of private equity firms believe that PE firms are bad for companies and employees in the long run—causing massive job losses. The American Investment Council counters that “the private equity industry benefits investors, companies, workers, and communities. Investors gain from higher returns and less volatility than public markets. Companies receiving private equity investment benefit from access to capital as well as business mentorship and expertise. Workers benefit from stronger companies that are committed to growth. And communities across the country are bolstered by private equity investment that helps build sustainable companies and jobs.”
- Investment Underwriters
- Private Equity Accountants and Auditors
- Private Equity Business Development Directors
- Private Equity Chief Dealmakers
- Private Equity Compliance Professionals
- Private Equity Financial Managers
- Private Equity Investor Relations Specialists
- Private Equity Lawyers
- Private Equity Marketing Specialists
- Private Equity Research Analysts and Associates
- Private Equity Risk Managers