Private Equity & The MBA Degree

by on November 10th, 2012

The world of private equity is one that has long been shrouded in wide-ranging conceptions and misperceptions among the general public—and no less so to a large percentage of those residing in the world of business and finance.  What is certain is that the domain of private equity is demanding and highly exclusive—positions are coveted and often difficult to obtain.

Myths abound to be sure, especially when it comes to what it takes to break into the industry. Chief among the myths is the long-standing notion that PE is the exclusive domain of investment banking professionals seeking to leverage their experience into buy-side positions offering stratospheric compensation packages. Even an MBA degree from a prestige school, the myth goes, can’t get around this experience hurdle.

Fact is, there is some truth to the myth. There’s no doubt that private equity has long been viewed as the ultimate exit strategy for a banker and that, in the past, the industry has largely been comprised of individuals with such background.  And there remain certain prerequisites for candidates seeking entry into private equity that skew in favor of banking professionals, including the adept ability with financial modeling and deal structure, networking skills, and often an MBA.

Not Your Father’s Private Equity

The fact is that the private equity landscape has changed significantly in recent years and continues to do so, offering new paths for professionals from myriad backgrounds. It is an industry that is much more multi-dimensional than in the past.

Today’s firms often employ strategies that are more operations-focused, requiring longer investment horizons than in the past. While financial engineering remains a major component in private equity investment, the model employed by many in the industry today is much more holistic in nature. Along the lines of VC investment, firms are very much focused on improving each investment from a variety of angles, including finding operational efficiencies and revenue growth opportunities.

To meet the new needs required by a buy, build and hold strategy, many private equity firms have expanded their focus beyond that of pure financial engineers. They now seek to leverage the skill sets of a more diverse talent pool with experience in a variety of industries and functions capable of managing corporate operations and change. This simply can’t be accomplished through a model that is reliant exclusively on the skill sets of those hailing from investment banking.

Doubt that to be the case? Well, take a look at this graphic from PrivateEquityCompensation.com that shows the diversity of backgrounds from hundreds of private equity pros prior to entering the field:

Myth Busted

Bottom line, growth is expected to continue in the private equity space as larger funds look for stable and attractive places to allocate cash in a time of great uncertainty. Firms will continue to reflect the longer-term focus by adopting strategies based on building portfolio companies rather than just shuffling balance sheets for resale. This will continue fuel industry demand for talent with diverse backgrounds for years to come.

Granted, breaking into private equity won’t get any easier, as entry will remain ultra competitive. As demonstrated by the lack of professional development provided by most firms in the industry, they simply aren’t interested in training. They much prefer paying for talent that is capable of hitting the ground running and delivering measurable returns from the get-go.

Hopeful candidates need to prepare in advance if they want to be taken seriously. A big consideration for individuals seeking entry is that of pedigree. Where you’ve worked is as important as what you’ve done. Same holds true for education. Those who have earned MBAs from schools offering private equity coursework or curriculums or, alternatively, those focused in areas directly relevant to the specialization of the firm, will have an edge when it comes to landing coveted positions.

The good news is that talented MBAs hailing from industries outside of investment banking now find themselves in demand in an area that was largely off-limits in the past. Those willing to roll up their sleeves inside of portfolio companies will find no lack of career options within private equity today and in the future.

David Kochanek is the Publisher of the Private equity & Venture Capital Compensation Report  and the Private Equity Jobs DatabaseHe brings over 20 years of professional experience including mergers and acquisitions, company turnarounds, executive recruiting and nearly a decade with a top 10 consulting firm.

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