Private Equity

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.