Over the last 10 years of recruiting in Private Equity across Europe and Asia, I would like to share the two most important factors for delivering a successful career in the PE business.
Don’t change jobs too frequently, without having completed deals.
Build your track record
The most successful investment professionals are the ones who have built a solid track record over a period of time. Remember, the more experienced you are, the more people will want to know about your track record and what your value add is – more specifically your IRR and multiples of return on exits of deals that you originated. It may come as no surprise that candidates who have built that track record are extremely marketable not just to other employers but also to LPs who have expressed interest to seed such individuals/ teams.
A top PE Partner of a management consultancy recently told me that on an aggregate basis, he’d earned more than most folks in Top PE jobs over the last 10 years.
How’s that possible? Let’s break it down.
Most people get in to private equity for the thrill of doing deals and taking a good slice of the carry upon a decent exit. The problem is, they often leave before their carry is vested, either because they have a new or conflicted investment philosophy, or are unable to raise capital for next fund. They are unable to close deals of their choice due to interference from other stakeholders that are not involved in the deal etc. The excuses recruiters hear are endless. The end result is that they leave without a solid IRR track record and also don’t earn the carry.
Private equity is not a Long-Short hedge fund, and so your career moves should not be taken with a Long-Short term view. It is important to commit to a job and build that all-important track record, no matter what obstacles you face. Of course if the fund is not active, and loses its own ambition to grow, the advice would be to exit and search for a new role. That would be wise in such a case. But moving for the sake of moving, just because the grass looks greener, will not get you anywhere fast.
Secondly, it is important to add value in your organisation, especially at the start of your private equity career.
Focus on adding value and career progression will naturally follow
If the Principal has tasked you with creating robust financial models, it doesn’t mean you can’t counter some investment decisions and take a view. Your JD doesn’t prohibit you from networking and showing your senior management good investment opportunities. There is nothing that shouts out “promotion” more than someone who is able to go out of their way to find out new ways to add value. Stop waiting to add value.
It is often wrongly declared that you can’t progress in PE firms, and only way up is to move laterally. While I agree that it is inevitable with some shops with “top heavy” management structures, a lot of the time, it is down to not enough value being added by the individual themselves.
“Strive not to be a success, but rather be of value.” ~ Albert Einstein
At some point we all have to change jobs for our own reasons; however, an investment professional focussed on the goal of success, must not make promotion in itself their priority. An associate should be concerned about learning every stage of the investment process, and adding as much value as possible to a portfolio company. A more senior professional should only be concerned about building a decent IRR track record through sourcing, structuring and managing the portfolio companies through to a successful exit.
If you have reached the peak of your career and are not able to demonstrate strong multiples and IRR to employers, the chances of continuing a career in private equity will be greatly reduced. If you do find yourself in such a predicament where you were unable to close deals due to whatever reason, our strategic advice would be to reinvent your career by joining the sell side and start doing deals again.
Anything that does not add more value than what you pay for, is at risk of being cut. In this case, the firm may or may not cut your job, but it will definitely cut your career in PE.
As Henry Ford put it, “You can’t build a reputation on what you’re going to do.”
Work at building a track record that speaks for itself, look for opportunities where you can add value, and watch your career take off.