Private equity is very similar to investment backs in terms of a strong seniority structure. It has wide differences in responsibilities and experience level from top to bottom. The junior professionals are typically required to carry out analytical work while the senior-most people handle more essential tasks like relationship management, decision making with respect to investment along with deal sourcing.
But, there is one difference between private equity firms and investment banks which is that P.E has a less complex hierarchy structure comprising lesser layers. That is also because, in general, P.E firms are relatively smaller than IB divisions of a big bank. This gives a great opportunity to juniors to mingle with the senior members of the firm and this direct interaction also provides them with the chance to learn from the seasoned professionals.
Here is gist on the key roles in the hierarchy of PE firms.
Professionals who do not own an MBA are usually the lowest level of people in private equity firms. These professionals handle tasks like financial modeling along with work related to investment that needs precision. These private equity professionals also assist the management and monitor portfolio companies. Supporting transaction and sourcing deals is also a part of their jobs.
Most if the pre-MBA associates are hired for the 2-3-year program. After the program is over, they are expected to pursue an MBA from a top-notch business school. If you talk about smaller firms, they tend to promote their associates to higher level positions. These firms provide ample opportunities to the junior staff to make a more important place for themselves by taking up senior roles. Most private equity hierarchies begin with Pre-MBA associates along with associates and they mostly have two to three years of work experience in IB or strategy consulting.
Vice President or Principal
Vice presidents, as well as principals, usually handle the day to day responsibilities connected to the deal teams together with working closely with top partners of the PE firm on negotiations and strategy. Professionals in such roles are expected to produce investment opportunities as well as ideas associated with a potential acquisition. People at this level have an MBA degree from a top-tier business school.
The remuneration for a Vice President or principal depends on large or small is the PE firm. Moreover, Private Equity firms offer an amount of the carried interest to the employees at the senior level.
Managing Director or Partner
Managing directors, as well as partners, are obviously the highest ranking professionals of the PE firm and they are the final decision makers. They directly interact with the portfolio company’s management, target companies along with the investment banks. These private quality professionals are responsible for conducting negotiations, sourcing deals, and dealing regularly with the private equity organization’s Investment Committee. Managing directors receive notable compensation in the form of carried interest within the private equity fund(s).