The Private Equity Associate: Pathway to Glory, or Glorified Monkey?

A long time ago, Private Equity Associate roles were the main pathway into private equity.

You’d work in investment banking or management consulting for a few years, interview around, win an offer, and then move onto greener pastures.

And you can still do that.

It’s just that you don’t necessarily “need” to enter the industry like this anymore since PE Analyst roles have become increasingly common.

But there are still many benefits to entering as an Associate, which we’ll cover here:

The Private Equity Associate Job Description

First, note that there are different types of Associates in private equity.

The normal “Associate” title refers to a pre-MBA role, while “Senior Associate” might refer to a post-MBA role or an Associate who has been promoted after working for a few years.

And then some firms combine the Analyst and Associate roles or otherwise do not separate them into distinct jobs.

Regardless of the exact title, though, an Associate’s job is to lead deal processes from start to finish.

Private equity firms raise capital from outside investors, use it to acquire and improve companies, and then eventually sell those companies to earn a return.

Each part of that description – raising capital, acquiring companies, improving companies, and selling companies – could be considered a “deal,” and as an Associate, you’ll be involved with each one.

You’ll also spend time on non-deal work, such as monitoring portfolio companies and supporting management teams.

In a typical day, you might:

• Review CIMs and other marketing documents from bankers looking to sell companies;
• Generate new deal ideas and reach out to companies to introduce yourself;
• Review financial results from a portfolio company and make sure they’re in-line with the forecast;
• Build a valuation or leveraged buyout model for a potential deal;
• Analyze a potential bolt-on acquisition; and
• Conduct market research to assess a company’s growth potential.

Analysts and Associates perform many of the same tasks, but Associates are responsible for coordinating deals, working with outside advisors, and checking Analysts’ work.

They are also more likely to participate in fundraising and “firm representation” activities.

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

An average day depends on the PE firm’s size, strategy, deal activity, and corporate culture.

For example, an average day at a software-focused, middle-market growth equity firm in California will be very different from an average day at a private equity mega-fund in New York that executes leveraged buyouts of public companies.

An average day at a fund with $500 million in AUM will be very different from a fund with $5 or $10 billion in AUM.

And you might have a fairly relaxed day if there are no active deals, or you might work banking hours if a deal is close to the finish line.

In the account below, I’ll assume that the Associate works at a middle-market firm with between $1 billion and $5 billion in AUM and that the firm does a mix of leveraged buyouts and growth equity deals:

8 AM – 9 AM: You arrive at the office, check financial and market news, and read overnight emails.

A Principal and Partner pull you into their office because they need your help with creating a pitch deck to raise your next fund.

9 AM – 10 AM: You review a cash-free debt-free LBO model for a professional services company created by one of the new Analysts at the firm.

The model looks good, but the management team has ridiculously optimistic projections, so you ask the Analyst to add scenarios with lower numbers.

10 AM – 11 AM: You conduct an introductory call with a closely held private company in the Midwest, which happens to have insane profit margins (50%+).

You need to get them comfortable with your team, so you explain why you like their business and how your firm could help them expand.

11 AM – 12 PM: You receive a few teasers from bankers marketing different companies, so you divide up the work and ask your Analyst to review half of them while you look at the others.

12 PM – 2 PM: You join a call with outside lawyers and accountants to review their due diligence findings on a deal that has been dragging on and on for months.

They have concerns over terms in the employment contracts and some of the company’s revenue recognition policies, and they need a few more days to finalize their conclusions.

You’re very skeptical of this company, so you’re leaning toward speaking out against the deal at the next firmwide meeting.

2 PM – 5 PM: You ask your Analyst to fix the formatting of some financial data and update the internal model for one portfolio company that just reported results.

Then, you start reviewing your own firm’s results from its most recent fund to calculate the fund-wide IRR and cash-on-cash multiple and create case studies of specific deals.

You’ll use these figures in your pitch deck to potential new Limited Partners.

5 PM – 6 PM: Conduct another call with a different set of advisers – management consultants – who are involved with the deal from earlier in the day.

This company is the one with revenue-recognition and employment-contract issues, and now the consultants deliver even more bad news: they think its total addressable market is 2-3x smaller than what the management team claimed.

You’re definitely going to lobby against this deal now.

6 PM – 7 PM: Meet with your Analyst and VP to discuss some of the teasers from earlier in the day. The Analyst is enthusiastic about one company in a fragmented market, so you agree to take a deeper look.

7 PM – 8:30 PM: One of the Partners has decided to back the leveraged buyout of that professional services company from this morning, despite the unrealistic projections.

You and the Analyst on the deal start outlining the investment committee memo you’ll have to write to win approval for a binding offer.

—

This day was fairly busy, but not overwhelmingly stressful.

There were a few active and potentially active deals, but nothing in its final stages.

So, the work was a mix of model reviews, presentations, data gathering, calls and meetings, and a bit of sourcing.

Private Equity Associate Lifestyle and Hours

At many smaller funds and middle-market funds, you can expect to work 60-70 hours per week, mostly on weekdays, with occasional weekend work when deals heat up.

At private equity mega-funds, such as KKR and Blackstone, you can expect investment banking hours all over again – you’ll be at the office all day and all night, and you’ll be busy even on weekends.

On average, though, you’ll have a better lifestyle than investment bankers at the equivalent levels.

That said, you’ll still have a somewhat-unpredictable schedule because you work on deals.

Private Equity Associate Salary (and Bonus)

Total compensation in New York (and other financial centers in the U.S.) for Associates is between $150K and $300K, depending on firm size and your performance.

And some firms will pay slightly above this, maybe up to the $350K level.

Senior Associates earn more like $200K to $400K, possibly up to $450K in some cases.

You may get a small amount of carry, but nothing life-changing at these levels.

Salaries and bonuses will be lower outside the U.S. – even in other financial centers such as London.

And they fall even further once you get into non-financial centers, such as smaller cities in Europe and Asia.

Once you get into emerging and frontier markets, add another discount on top of that.

The bottom line is that these jobs can be quite lucrative, but if you’re working at a smaller fund, in a smaller city, or in an emerging market, you will earn far less than what the “headline numbers” for compensation in NY suggest.

Why Become an Associate?

The money is obvious motivation – especially at larger funds, compensation exceeds that of almost any other job that you can obtain as a 25-year old.

But most people end up in private equity for a slightly different reason: they got into investment banking, they don’t know what to do next, and they want something that pays more and offers slightly more interesting work.

If you’re hard-working, competitive, you are not passionate about anything specific, and you want to make a lot of money, private equity is perfect.

If you’re at a bulge bracket or elite boutique bank, it’s usually the “default exit opportunity.”

While those are common reasons for getting into the industry, they are not necessarily good reasons for doing so.

Fundamentally, you must like working on deals and long-term projects to do well.

That means that you will accept the irregular hours and unpredictability that come with major transactions.

If you want to “be an investor,” other options will offer a more-predictable schedule where you can execute ideas without having to worry about 5-year plans or last-minute emergencies: hedge funds and asset management, for example.

Finally, note that it will take a massive amount of time and effort to win an Associate role in private equity (see below), especially if you’re a non-traditional candidate.

So, you need to be dedicated to the point of obsession to make it worthwhile.

Recruiting: How to Become an Associate

We’ve covered the recruiting process extensively before – please see the articles on how to get into private equity, the on-cycle recruiting process, and the off-cycle recruiting process.

And then there are the articles on private equity interviews and private equity case studies.

If you’re currently working in consulting, the consulting to private equity article will be helpful as well.

One of the quotes from that article summarizes the key question you need to ask yourself:

“What will you have to do to get into this industry, and do the rewards justify the number of steps and time required?”

For many people, the answer is “no.”

For example, if you’re currently in a completely unrelated job, such as marketing at a PR agency, you’ll probably need to find a finance/business role, then complete a top MBA, then work in investment banking, and then attempt to move into PE from there.

And after doing all that over at least 4-5 years, you’ll still only be a candidate for an Associate role in private equity.

Unless you’re working at one of the top investment banks in a prime group for PE recruiting (M&A or a strong industry team), it will be a long and difficult path to get in.

How to Succeed as an Associate and Get Promoted

If you say, “Challenge accepted!” and win an Associate role, you’ll be in for a surprise once you start working.

The skills that you were tested on in interviews are not the same skills that you need to advance up the ladder.

At the VP level and beyond, the job becomes less about technical skills and more about presentation and persuasion.

You can build the most advanced LBO model in the known universe, and it will not affect your promotion chances at all.

To advance, you need to:

• Speak up and express strong views on companies, industries, and potential deals (once you’ve already proven yourself at the firm, of course).
• Operate independently so that the VPs and Principals have more time to do their work.
• Present well by learning public speaking and improving your ability to think on your feet. Slick talkers save deals – not Excel jockeys.
• Get to know the portfolio companies. If the management teams like and trust you, they’ll be far more likely to pass along a good word to the Partners.
• Find a niche, such as a certain region, industry, or deal type where you’re the expert. If professionals at the firm feel like they “need you,” you’ll be more likely to advance.

If you do not get promoted, you might join a normal company in a corporate development or strategy role, go to business school, join a startup or launch your own, or pursue other options in finance, such as hedge funds or venture capital.

The good news is that you gain a fairly broad skill set in private equity, so you have fairly broad exit opportunities if it doesn’t work out.

The Private Equity Associate Job: Right for You?

This one’s a big question, so you should answer it by splitting it into smaller parts:

• Is private equity as an industry right for you?
• If you’re currently a Private Equity Analyst, should you aim for an Associate promotion?
• Or, if you’re currently in another field, like banking or consulting, should you put in the time and effort required to win a PE Associate role?

For the first question, see our article on the private equity career path to get a sense of the overall pros and cons.

For the second question, the answer is almost certainly “yes” unless you hate the job and want to do something else – or your firm does not offer promotions for Analysts.

The last question is the hardest one to answer, but it goes back to that quote above:

“What will you have to do to get into this industry, and do the rewards justify the number of steps and time required?”

Many people start recruiting for these roles without fully understanding the requirements, only to realize midway through that they have no realistic shot at success.

You need to avoid that at all costs – unless you want to end up as a glorified monkey who also doesn’t have a private equity job.