Private equity is big business. In fact, last year was a record-breaker with buyouts breaking through the US$1trillion ceiling for the first time, dwarfing previous peaks in deal value (see graphic below).
Private equity firms and funds are alternative investment vehicles that invest in companies often in the high-growth start-up to mid-cap range, meaning risks can be high, but returns on investment (ROI) impressive.
‘Private equity is one of the most rewarding, challenging and demanding sectors of the financial industry,’ says Didzis Berzins FCCA, co-founder and managing partner at alternative investment fund manager AJP Capital in Latvia. ‘It is one of the top blocks of the job pyramid within capital markets. You must compete with the most talented, dedicated and success-hungry individuals.’
Private equity houses range from the more boutique in stature, such as AJP Capital, which focuses on the circular economy, all the way to global behemoths like KKR, Blackstone and Carlyle. As with most businesses, private equity firms will have finance teams, finance managers and directors, even CFOs depending on their size, to manage the day-to-day finance operations.
‘You must compete with the most talented, dedicated and success-hungry individuals’
However, there is also scope for accountants to bring their expertise to core activities, such as managing or assisting in managing funds and portfolios – though bear in mind that candidates will need to upskill, requiring additional qualifications.
Berzins likes the versatility inherent to working in private equity. ‘Every investment fund you manage (or assist to manage) is somewhat different – strategy, target investments, and investment/exit structure. Since we are a relatively small house, there is less specialisation and each team member, including myself, is involved in the entire lifecycle of a fund – fundraising, investing, investment value creation, and exit.’
He also likes the sector’s spirit of competition. ‘You constantly have to think about how to be better, quicker and squeeze out higher internal rates of return (IRR) compared to competitor funds.’
Getting in and getting on
A finance background is hugely important. Investment proposals contain detailed financial analysis, so without finance expertise it would be difficult to participate in decision-making. ‘My background in accounting and corporate finance makes it easy to read such reports, even if they are based on complex financial concepts,’ says Berzins.
Fund accounting is a more obvious entry path, especially for those with a strong financial accounting background, as well as those from audit. Fund accountants are responsible for preparing accounts and reports for funds, which can lead, especially if you’ve worked for boutique firms, to quickly developing fund and portfolio knowledge, which can open doors to the fund management side.
Another way in is as a private equity analyst – those who research potential targets, determine accurate valuations, optimal capital structures and, ultimately, whether an investment will meet a fund’s goals. This requires a great deal of financial modelling and scenario building, as well as financial and management report analysis.
For those who seek to work in investment management, the Chartered Financial Analyst (CFA) qualification is a highly regarded qualification to add to your skillset.
Many professionals switch sectors, with those coming from investment banking highly valued by private equity houses. Additionally, private equity funds invest in various companies and sectors, so expert knowledge of a specific industry will also be valued. Excellent leadership and management skills can also be determining factors for those looking to switch to private equity.
‘Working for a private equity firm proves you’re bright, agile and dedicated’
From a personal qualities and skills perspective, Berzins highlights the importance of showing initiative and effectively displaying your skills to win new challenges and, therefore, being rewarded generously if a job is done well.
People can experience rapid growth in smaller private equity firms, of which there are many around the world. You can then compete successfully for most investment jobs in the capital markets industry, says Berzins. ‘Working for a private equity firm means having a quality stamp in your CV. It proves you’re bright, agile and dedicated.’
And if you decide to leave the investment sphere, there is the potential to join the management team of a private equity fund’s investee company.
Visit the ACCA Careers website for news and advice on your next career move