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Private Equity Analysts

The Private Equity industry is a pivotal sector in modern global economies. Several financial institutions and investors often prefer private investments over transactions on securities exchanges. The job of a Private Equity Analyst in the private equity industry may vary, depending on the fund sector, the legal status of the company and the skill set that the company needs.

A Private Equity Analyst uses sophisticated financial modelling techniques to review and analyse the merits of investing in the stock of an operating private company. Private equity firms employ Private Equity Analysts to manage an investment portfolio or fund, comprised of either a controlling or substantial minority interest in the equity of the private companies in which they invest. Since there is no readily ascertainable market price for shares of privately held companies, the most crucial role of a Private Equity Analyst is to perform an accurate valuation of the business' common stock, in which the private equity firm wishes to invest.

Role and Responsibilities

A Private Equity firm seeks to maximize its investment in the private companies in its portfolio through a wide variety of different transactions. The firm may also seek to offer the shares of the company to the public through an initial public offering. Besides, they may also either attempt to recapitalize the enterprise, or sell the company to another corporation — either for cash or in exchange for the shares of the acquiring company. The various tasks performed by a Private Equity Analyst will vary according to the particular investment strategy employed by the private equity firm at any given point of time.

  • A Private Equity Analyst can seek to work in the corporate investments department and help the firm raise funds from institutional investors such as banks, insurance companies, hedge funds, mutual funds and university endowments. He can also perform financial accounting and reporting tasks and help the company prepare financial statements that adhere to generally accepted accounting principles (GAAP). A Private Equity Analyst can be a valuation analyst too, one who helps senior management appraise companies or sectors in which the firm wants to invest.
  • When an equity fund is reviewing private companies for potential investment, the Private Equity Analyst is expected to perform a diligent analysis of the company under consideration. Since the value of an enterprise is comprised of many types of different and varied components, including tangible and intangible assets, the Private Equity Analyst should use sophisticated financial modelling and accounting techniques to ensure that his appraisal of the business captures its true value, or intrinsic worth. The Private Equity Analyst should also perform discounted cash flow and internal rate of return analysis to support his valuation methodology.
  • A Private Equity Analyst will be required to meticulously review a private company’s financial statements in order to determine if acquiring an equity position would be suitable considering the investment objectives of the equity fund. To make this determination, he will have to prepare a detailed financial review that computes the present value of a discounted stream of the company’s projected future earnings. As part of his valuation methodology, a Private Equity Analyst will have to ascertain any competitive advantage the company enjoys by virtue of its dominance in the market.
  • If the private equity firm is seeking to maximize its return on investment in a company by changing its capital structure, a Private Equity Analyst will have to study the financial scenarios under a variable set of assumptions. A thorough analysis on this will help reveal the optimal mix between certain debt and equity instruments, to achieve the highest rate of return for the investment fund. In a stock-for-stock acquisition, the Private Equity Analyst will have to make detailed assessments about the value of the stock of the acquiring company by utilizing reliable and accepted business valuation methodologies, to ensure that the transaction meets the profit margin expectations established by the equity fund.
Education and Training

Those who aspire for private equity careers such as Private Equity Analyst, which is a type of financial analyst, must have a college education and pass financial certification exams. A bachelor's degree may be sufficient but a Master of Business Administration degree will be an asset. Experience as a staffer with major managerial responsibilities, such as a senior analyst or proprietary trader or a doctorate in financial engineering, investment analysis, Maths or Econometrics may also be beneficial. A Private Equity Analyst can improve his prospects of promotion by enrolling for a higher academic degree or a professional certification. For instance, a Private Equity Analyst can increase his career growth opportunities by opting for a university's master's program in finance or accounting.

While on training, a Private Equity Analyst must learn to analyse trends such as capital-raising and the types of deals that are transpiring in the markets. The ability of large buyout firms, for example, to raise capital in a stringent economic scenario might signal signs of recovery in that market. A Private Equity Analyst must be able to detect these patterns, assess what is driving the trends and determine where the industry is heading.

Career Development

An adept Private Equity Analyst should master communication and writing skills to produce extensive research reports, and exhibit a solid grasp of the financial markets. A certified Private Equity Analyst’s career can be pursued within large institutions or small research firms. The private equity industry does go through peaks and valleys but there is a steady demand for Private Equity Analysts to detect trends and patterns surrounding this influential sector in the global capital markets.

There has been a widespread trend in the private equity arena to purchase publicly traded companies and make them private in a leveraged buyout. A proficient Private Equity Analyst must be able to recognize the pace and size of such deals unfolding in the markets, and which companies in certain industries appear to be the most ripe for such a takeover scenario. To excel in this chosen line professionally, it is imperative for a Private Equity Analyst to understand the private equity universe with extreme scrutiny.