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Private Equity Careers

Private Equity Firms in China Stumble

August 20, 2012

China Daily is reporting the Chinese venture capital and private equity industry has hit a major stumbling block as Asian economic growth grinds lower. While stories of an economic slowdown in China have been rather frequent over the last few months, this is among the first indications that investment is actually declining in what remains one of the largest capital markets in the world in terms of new allocations.

The level of capital raised by Chinese focused private equity firms in the first half of 2012 fell dramatically, down to only $8.6 billion from $37.5 billion in the first half of 2011.  The number of investments undertaken by private equity firms saw a similar decline, falling to only 653 investments from 1,105 in the same 2011 period.

Manufacturing investment down, health care and internet ventures up

One of China’s largest export markets is Europe, and economic troubles there have put a damper on investment in new manufacturing facilities and other elements of the consumer goods industry. While investments in this sector have fallen sharply, health care related ventures have been the primary target of traditional private equity firms. Twenty-three deals occurred in this sector during the first half of the year.

In the higher risk venture capital segment of the private equity world, internet ventures received the most attention with 72 investment deals totaling $471 million. Private equity firms are looking to cash in on search engines and social networking, which have yet to be fully saturated in China. This is a stark contrast to the United States and other western markets where Google and Facebook have a stranglehold on this market.

Financial scandal hits China

While Chinese firms continue to attract money from the United States and other western nations, investors are thinking twice about placing funds overseas after a series of financial scandals and fraud allegations have hit a number of Chinese firms. One example is Sino-Forest, a Chinese forestry products company, which has been accused of a billion dollar fraud by the Ontario Securities Commission in Canada.

China’s success hinges on European response

Those that are considering looking for employment in the private equity sector may need to think twice about previously exciting China or Asia focused funds. The outlook in this region of the world hinges on the success of European leaders in dealing with their debt situation and subsequently restarting consumer demand. The failure of European governments to effectively deal with their economic issues will impact other Chinese markets as well, most importantly the United States. Whether the statistics from China are the first indicator of a decline in overall private equity activity remains to be seen.  The economic data from China to be released in the coming months will be important in determining the direction of employment and future growth opportunities in the private equity sector.

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Breaking Into Private Equity

August 16, 2012

Public History on Private Equity

According to the most recent Global Alternatives Survey by Towers Watson, private equity managers currently control 22 percent of the alternative investments market.  This puts them in a strong position, behind the big leader, real estate, at 35 percent, but ahead of hedge funds, which control 21 percent of the market.

While most private equity firms shared concerns at the beginning of 2012, conditions are markedly better 7 months in. Recently, leading PE consultant Bain & Company released their Global Private Equity Report 2012 which explores and outlines the current state of the PE market. While 2011 presented some adverse market conditions 2012 has, lately, shown some very positive ones.

Of course, the market is still in transition.  Before the 2008 financial crisis, PE firms benefited from highly liquid leveraged loan markets, which broadened intra-firm strategy options and allowed for optimized returns.  All of this came to a halt after the crisis with little sign that those levels would be seen again.  As such credit is still hard to come by relative to 2007, with some lenders withdrawing from the PE market entirely.  On the other end, the initial public offering market is stunted by its private equity dependence, which discourages fund managers from getting involved entirely.  The fact that an IPO like Facebook’s can flop has caused a general air of caution in the market. Still, as early as 2010, the value and volume of European buyouts started to increase and initial public offering markets are still cautiously taking on larger assets with proven sales and revenue.

More dangerous is that private equity investments take place in a few privileged firms, which in some cases have their own distinct hiring rings you may or may not be a part of. Sixty-eight percent of all capital invested in private equity goes to the top ten private equity managers.  More importantly, the Towers Watson survey points out that most of this money is held by North American managers rather than those in other parts of the world.

Slim Pickings

What we see then is that, even though there’s slow growth in private equity, it’s consumed by a few big firms which means even fewer job opportunities.  Why?   Part of synergy in big business requires cutting back redundant staffing, so increased unemployment happens not only as small companies shrink, but also as big companies grow.  As such, senior analysts become junior analysts, and eventually those fired are looking for new jobs – usually another step down the ladder.

Although it is slow right now breaking into private equity is possible.  As always, show your strengths and your industry specializations, and give the employer something unique that puts you in the best position to analyze that industry.  Good luck!

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How is the Economy Affecting the Private Equity Manager’s Life?

August 6, 2012

Private equity professionals typically spend their day evaluating various businesses and investment strategies, such as judging potential gains and losses to certain growth companies, assessing the possibility of leveraged buyouts, and gauging upside and downside risks associated with potential venture capital investments.

Private equity managers do a lot of the same things that hedge fund and investment banking professionals do, with the differences being that private equity firms tend to be more focused on executing transactions on behalf of their fund rather than on behalf of their clients. They also tend to be more focused on corporate managerial issues, such as streamlining management processes and corporate cost cutting, as opposed to the rapid fire trading of hedge funds.  The generally longer time horizon and use of their own money in less liquid investments can end up making the job of a private equity manager more or less lucrative than competing financial careers.  It all depends on how good you are.

The Economy’s Affect On The Private Equity Manager

This background leads to the question: how is the economy affecting the life of the private equity manager?  Well, not surprisingly, private equity employment is highly procyclical with economic growth, with year over year growth rates up almost 5 percent before the onset of the financial crisis, after which employment dropped as much as 6.5 percent at its trough in the fall of 2009.  Since the bottom out of the employment decline, private equity firms slowly added to their payroll through the end of 2011, after which private equity employment has seen a slight decrease.

Private Equity Employment Prospect

So, why is private equity employment growing slower than the economy’s overall employment base, and, when will it pick up?  One reason behind the lagging performance of private equity employment is that investors are still jittery about prospects for economic growth, and as such, are demanding greater liquidity, which is something private equity firms are not know for (because of the way a number of private equity deals are structured, liquidity is generally not a feasible feature).  Another reason is that private equity returns during the financial crisis period underperformed some of their competitors, such as hedge funds.  So, although private equity investments generally outperformed hedge funds and most other asset classes in the period before the onset of the financial crisis, the large losses during the financial crisis is a factor that sticks in investors’ minds (i.e. loss aversion as opposed to return maximization).

When will private equity employment growth pick back up?  When investors have greater confidence in the strength of the economic recovery, employment in private equity firms will likely pick up at a faster rate than competing financial professions.  The real question for individuals interested in private equity employment is, then: when will investors become more confident in the economic recovery?

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Private Equity Off to a Strong Start in 2012

July 16, 2012

According to Dow Jones LP Source, both U.S. and Europe based private equity funds saw strong support from Limited Partners in what was the best half for private equity fundraising since 2008. American private equity managers managed to raise $86 billion in new money in the first half of 2012, while their European counterparts gained […]

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Private Equity Opportunity Driven by Access to High Yield Debt Markets

June 11, 2012

One of the key factors in the attractiveness of private equity investments it the cost of leverage that firms use to boost equity holder returns. Generally, private equity firms use a combination of senior bank debt (or bank credit facilities), senior bonds and subordinated (mezzanine) debt in order to increase leverage in their investments over […]

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Private Equity Deal Making Jumps Ahead

October 25, 2010

The big players in private equity are set to jump back into the market in 2011, reports Time magazine. Companies such as Blackstone Group, Silver Lake Partners LP, TPG Capital, and Bain Capital Partners are poised to boost their M&A and IPO activity to levels not seen since before the 2008 crash. One reason is […]

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The Wild West of Private Equity Jobs

October 11, 2010

Private equity investments are apparently flooding into emerging economies.  Even though the lack of reliable market information and the constant threat of political upheaval makes this corner of the PE sector especially dicey. The Emerging Markets Private Equity Association reports that private equity investment in emerging markets rocketed to $13 billion in the first half […]

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Private Equity Professionals Go Back to School

September 27, 2010

Five years ago, Harvard Business School launched its entrepreneurs-in-residence program to help students with advice on how to start new ventures. The program has expanded every year and now and includes 5 private equity and venture capital professionals for the 2010-2011 academic year. It’s a “win-win” experience for both students and industry insiders. The students, of […]

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UK Launches a Benchmark for Private Equity

September 13, 2010

Is private equity fundraising ready to spring back to life? The industry is keeping an eye on a new effort by UK-based private equity group BC Partners, who are attempting to raise $7.6 billion by the end of 2011. It apparently marks the largest fund-raising effort in nearly two years, according to an article in […]

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A Little Flash Can Land You That Private Equity Job

August 30, 2010

Dealbreaker recently highlighted what a little extra guts can do for your private equity job search. It seems an ambitious job-seeker named Jeffrey Chiang decided to take a page from personal ads and the acting world to give his resume that added kick. Chiang included a few “action” shots along with a close-up photo (known […]

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