Private Equity Analyst Roles: The Best Way to Skip Investment Banking?

A long time ago, Private Equity Analyst positions did not exist.

Banks hired the top students out of undergrad for Investment Banking Analyst roles, which was a nice arrangement for private equity firms: let banks recruit the “best and the brightest,” and then swoop in to hire away trained bankers.

But then someone in private equity asked the key question:

“Wait, why not just hire our own Analysts? Why conduct an accelerated recruiting process to fight over the same people at the top banks, when we could hire them directly out of undergrad and groom them ourselves?”

And like that, Private Equity Analyst positions were born.

Here’s what they’re like, why you might pick one over an IB Analyst role, and what to expect in an average day on the job:

What Do Private Equity Firms Do?

You should read our coverage of private equity and the private equity career path if you don’t yet know the answer to this one.

But to recap for the 998^th time, PE firms raise capital from outside investors, use it to buy companies, improve them over time, and then sell those companies to realize a return.

As an Analyst, you’re at the bottom of the hierarchy (OK, except for interns), which means that you do all the work that “has to get done.”

Senior people in private equity focus on fundraising, sourcing deals, representing the firm, and making the final investment decisions.

Junior people, such as Analysts and Associates, focus on deal execution, monitoring portfolio companies, and generating and screening new deals.

The Private Equity Analyst Job Description

Some PE firms use the terms “Analyst” and “Associate” interchangeably, and some even advertise roles as “Analyst / Associate.”

For our purposes, however, Analysts are different from Associates because:

1. They are hired directly out of undergrad or non-MBA Master’s program – not out of investment banking, management consulting, or Big 4 firms. Therefore, they have minimal or no full-time work experience.
2. In many cases, Analyst roles are not Partner-track positions, so you won’t be expected to stay at the firm for the long term.
3. Analysts tend to work on specific aspects of deals and potential deals rather than coordinating the entire process from beginning to end.
4. Analysts are rarely, if ever, involved in fundraising or other “firm representation” activities.

On paper, Analysts and Associates might perform many of the same tasks:

• Building financial models.
• Reviewing CIMs submitted by bankers who are selling companies.
• Monitoring portfolio companies.
• Conducting due diligence on potential investments.
• Cold calling to source new deals.

But as with the Investment Banking Associate vs. Analyst distinction, there are some subtle differences.

For example, if an Analyst and Associate are both reviewing a potential investment that bankers are pitching to them, here’s how their tasks might differ:

• The Analyst might build an initial, simpler financial model for the company, complete data gathering tasks, and perform industry research on the company and its competitors.
• The Associate might review the Analyst’s work and coordinate with the outside legal and accounting teams to begin reviewing all the files; he might also build a more complex model if the deal advances to the next stage.

The exact differences also depend on the size of the firm.

For example, an Analyst at a mega-fund like KKR or Blackstone would do more of the “modeling / data / analysis” work, while one at a middle-market fund with a flatter structure might act more like an Associate.

A Day in the Life: What Does a Private Equity Analyst Do?

An average day in the life of a PE Analyst depends on:

• The types of deals the firm does (growth equity vs. middle-market vs. large-cap) and the strategies it uses (e.g., add-on acquisitions vs. operational improvements vs. financial engineering).
• Deal activity, including whether or not any deals are close to the finish line.
• The firm and how it treats its Analysts (e.g., Associates in training or soulless commodities waiting to be ground into dust?).

But if we take the average case and say that it’s a middle-market PE firm that focuses on leveraged buyouts and bolt-on acquisitions and that there’s a moderate amount of deal activity, a typical day might look like this:

8:30 AM: Arrive at the office after reading financial and market news, and check your email for anything urgent in overnight messages.

9 AM – 11 AM: Your Associate asks you to update an LBO model you’ve been working on for a professional services company because the management team has just sent over new, very optimistic projections.

Your team is skeptical, so you start adding cases to assess the impact if the projections are completely wrong.

You’re in the final stages of bidding on this company, but it could fall apart instantly.

11 AM – 12 PM: Bankers have just submitted teasers for a few different companies. Your Associate starts looking at the most promising 2-3 and asks you to review the rest.

12 PM – 2 PM: One of your portfolio companies is planning a $20 million add-on acquisition. That is relatively small, so the only deal team members are a VP, Associate, and you.

You join a call to discuss customer contract and financial data the potential target company has just uploaded to the data room. Meanwhile, you eat at your desk.

2 PM – 3 PM: Some of the data is horribly formatted and will need to be cleaned up in Excel before it is usable, so your Associate hands this grunt work off to you.

3 PM – 5 PM: One of your portfolio companies has just reported quarterly results, so you update your internal model and start drafting a report for the next firmwide meeting.

5 PM – 6 PM: You go back to reviewing some of the teasers from this morning, and you pull up industry research on a few sectors, concluding that most of the companies are poor fits.

6 PM – 7 PM: You explain your findings to the Associate and VP, but point out that one of the companies is more promising because it’s in a highly fragmented market with mostly small businesses – a perfect roll-up opportunity!

7 PM – 8:30 PM: You find out that your firm wants to proceed with a bid on the professional services company because the numbers still work even with much worse performance, and one of the Partners is fully behind the deal.

You and the Associate start planning out the investment committee memo you’ll have to write to win final approval for a binding offer.

But it’s not due for another week, so you head home right after outlining it.

The day-to-day tasks here are not necessarily that much different from those of an IB Analyst, but expectations are higher and there’s less hand-holding.

You still do a fair amount of grunt work (data formatting, industry research, etc.), but more judgment and critical thinking are required.

Which Firms Offer Analyst Jobs?

Many of the mega-funds and some upper-middle-market funds offer Analyst positions: Blackstone, KKR, Carlyle, Bain, Silver Lake, Warburg Pincus, Audax, Leonard Green, Vista Partners, and more.

In Europe, some of those firms as well as ones like Terra Firma, 3i, Ardian, and PAI, offer Analyst roles.

Confusingly, some PE firms offer “summer internships” for undergrads but do not extend full-time return offers or hire directly for full-time roles out of undergrad.

Also, some firms offer rotational programs where you move between departments, such as investor relations, private equity, credit, and operations.

The bottom line is that you are more likely to find PE Analyst roles at mid-sized-to-larger firms and less likely to fund them at smaller ones.

Private Equity Analyst Hours

The work hours span a wide range because they depend on the nature of the role: are you an “Associate in training,” or are you more like an “IB Analyst 2.0”?

To be conservative, I’ll say the average range is 60 – 80 hours per week, with numbers at the top end of that range (or even above it) when a deal is in its final stages.

Weekend work tends to be minimal, but it does come up when deals are in their final stages.

Some private equity firms are notorious for grinding their Analysts to the bone (I won’t mention names here), so you could end up working investment banking hours depending on the group and firm.

Private Equity Analyst Salary (and Bonus)

Most Analyst roles in private equity pay lower salaries and bonuses than Analyst roles in investment banking; total compensation might be between $100K and $150K USD in New York, with lower figures in smaller cities and outside the U.S.

By contrast, IB Analysts might earn total compensation between $150K and $200K USD.

Allegedly, some of the “mega-funds” pay closer to $200K USD for Analyst roles in NY.

But I couldn’t find much data in compensation reports to back up those claims, so I’m not sure I believe them.

You may earn that much at the biggest funds, but the average case is the $100K – $150K range.

Why Become an Analyst Rather Than Joining as an Associate?

And now to the punch line: is there a good reason to start as a Private Equity Analyst directly out of undergrad rather than working in investment banking and then joining as a Private Equity Associate?

We partially answered this question in the investment banking vs private equity article; to summarize, it’s a good idea only if:

• You’re very certain you want to stay in PE for the long term;
• You’re at a well-known, established fund;
• You’ll be doing substantial work rather than cold calling; and
• You’ll have some possibility of promotion to Associate.

Yes, the work is more interesting than creating pitch books, but that is not a good enough reason to pick the job since there are also some clear downsides: less of a network, less training, and less of a brand name.

Some people argue that it’s better to start in private equity because on-cycle recruiting for Associate roles at the large funds has become incredibly early and competitive, so it’s a safer bet to win an Analyst role and then a promotion.

To which I respond, “Buyer beware.”

The problem is that not all firms offer direct promotions – it depends heavily on your performance, the firm’s deal flow, and your current involvement in deals.

Also, you’re extremely unlikely to go directly from Analyst a $500 million AUM firm to Associate at a $20 billion firm.

Even if you want to move up-market, you’ll probably have to do it over a few successive moves.

Recruiting: How to Become a Private Equity Analyst

To have a good shot at winning an Analyst role out of undergrad or a Master’s program:

• You should ideally be at one of the top target schools (Harvard or Wharton in the U.S.) or at least one of the top ~20 universities;
• You should have extensive internship experience, such as a corporate finance and boutique IB internship in your first 2-3 years at school; and
• You need to do a good amount of networking because firms do not openly advertise many of these positions. Alternatively, if you intern at an elite boutique or top bulge-bracket bank, they may contact you.

Some PE firms hire summer interns and then extend full-time return offers, while others try to “pick off” selected interns from the top banks.

The process is less structured than the one in investment banking interviews, and it could take weeks or months – or finish very quickly as you’re completing another internship.

The articles on private equity interviews and investment banking interview questions give you a good idea of the questions to expect.

The main differences at the Intern or Analyst level are:

• Less emphasis on deal/client experience since you won’t have much.
• Less emphasis on case studies and modeling tests – yes, they could still come up, but they probably won’t be as detailed as the ones in the PE Associate process.

Interviews tend to focus on why you want to do private equity right out of undergrad and how it fits into your long-term goals.

The PE Analyst Job: Up Your Alley?

As private equity firms have expanded their Analyst hiring, we’ve been receiving more and more questions about the role.

There’s no way to decide, universally, whether or not it’s for you, but the criteria above (long-term plans, established fund, real work, promotion chances) is a good starting point.

The biggest pitfall is assuming that a PE Analyst role at a boutique or lower-middle-market firm will lead you into a career at KKR or Blackstone eventually (don’t hold your breath).

That is possible, but it’s not probable, and there are some clear risks associated with starting in PE as well.

So, look before you leap, and if you leap into the “Private Equity Analyst” bucket, make sure there are no holes at the bottom.