Private equity firms operate with a structured hierarchy to maintain the health and effectiveness of their deal flow strategies. Typically, this hierarchy starts at the bottom with analysts or interns and ascends to the top with partners.
Let's dive into the corporate structure and hierarchy of most private equity firms. We'll highlight how each role contributes to the firm's overall success. Additionally, we'll demonstrate how Sourcescrub's M&A platform supports these roles, enhancing deal flow and operational efficiency. Each position within the firm plays a crucial role in ensuring the organization functions optimally.
Private equity is ownership or interest in an entity that is neither publicly listed or traded on a stock exchange. Private equity firms provide the source of investment capital for many private companies, using the funds of what are known as high-net-worth individuals (HNWI). HNWIs demand high returns on their investments, making private equity an intensely competitive field.
Private equity firms also often pursue the purchasing of publicly traded stock with the hope of turning publicly traded companies private. PE is intensely competitive and requires direct investment, so significant amounts of capital are required and companies with the biggest pockets are often the ones who end up dominating the industry. Many private equity firms require a minimum of $250,000 to even begin investing a HNWI's money. The goal is always getting a net positive ROI (return on investment). Everyone within the organization is working to achieve this goal, from the baseline employees to the partners at the top. Usually, everyone is working together to try and get high ROIs within four to seven years.
Analysts and associates form the foundation of a private equity firm. They are the entry-level position, and their job is to help manage many different streams of work across the firm. Usually, they're supporting deal sourcing and deal execution in the process of buying new companies or selling portfolios. While their interaction with portfolio management is usually limited, they are often found assisting in this as well.
Analyst & Associate primary responsibilities:
Average Analyst & Associate annual salary range: $100,000 - $150,000
Vice presidents are usually the next rung up from an analyst or associate. Usually, a vice president has an MBA, and their job title brings more responsibility in the areas of sourcing and deal execution. A VP will often be in charge of a team of analysts and are expected to be responsible for the flow of new deals in and out of the equity firm. They close investments, making them extremely valuable to a firm.
Vice President primary responsibilities: Because VPs are in charge of deal flow and execution, they have greater responsibility and need charisma and leadership skills. Their job is to convince principals and other senior team members that they know what they're doing. At this point in the job path, technical skills start to hit the sidelines.
Average Vice President annual salary range: $350,000 - $500,000
Principals are the next most senior role and usually need to have several years of experience as a VP before making the leap. Principals are evaluated on their ability to find promising companies and close deals on them. They are also involved in the management of and execution of company portfolios. Principals sometimes have compensation that is tied to the success of the firm, and because of this.
Principal primary responsibilities: Principals are the closers of a deal. They spend most of their time sourcing deals, passing those off to VPs, and then fundraising from HNWIs. They're usually the ones to get businesses to consider selling in the first place.
Average Principal annual salary range: $500,000 - $800,000
With Sourcescrub's innovative M&A platform and deal origination tools Private equity VPs and Principals can:
Partners are senior officials at a firm and are responsible for deal flow, portfolio management, as well as generating funding for the firm and overseeing its operation. Depending on the type of firm, there will be partners who specialize in different areas. For instance, Operating Partners focus on the operations side of the portfolio or the management of the firm. Investment Partners focus on investment activities. CFO or COO of an equity firm can also be considered partners or Operating Partners.
Partner primary responsibilities: Partners spend most of their time fundraising and representing the firm. This means a lot of heading out to events and conferences and doing everything they can to boost the reputation and brand name of the firm. They're involved with deals but are usually less so than a principal unless it's a very important deal.
Average Partner annual salary range: $500,000 - $1,000,000+
Managing Partners are the most senior partners at a firm, and are often the founders. They hold responsibility for the operation and returns of the firm, and will usually be a point person with operations and returns at the firm. They will also be present at a high level for operation and administrative choices and direction for the firm. They're usually the person in charge, with a salary of between.
Managing Partner primary responsibilities: These roles are the front-facing representatives of the firm. They're usually the ones with the name on the firm itself. Managing Partners are partners with a higher stake in the firm's success, and take on the responsibilities incumbent with such a position.
Average annual Managing Partner salary range: $700,000 - $2,000,000+
While it can ordinarily be a mistake to group private equity and investment banking together, you can often trace both trajectories of industries' outlook together. Private equity is a business that is often based around deal-making and relationships. So, it isn't at risk of being wrecked by automation. As long as the private equity industry can continue to outpace the growth of public equity (a trend which it seems to be doing), there will be a place for careers in private equity for a long time to come.
COVID-19 and economic downturn has made the near-term outlook for private equity jobs a slightly negative prospect, but markets inevitably rebound, so the long-term outlook for private equity as a career looks to remain stable or even experience growth potential.
On every level of the firm, every role can benefit from Sourcescrub's M&A tools and deal origination tools to upgrade their growth potential and enhance their strategy with:
Perform an easy TAM analysis as the market evolves to stay abreast of top opportunities. Private equity firms can rapidly and accurately identify potential add-on acquisitions and uncover investment opportunities. With the best-in-class search and filtering functionality, investment professionals can cut through the noise of company lists in seconds.
Search through an extensive up-to-date industry coverage list to quickly enhance investment strategies with relevant business data. If you find a list we don't have, leverage our team of 500+ researchers and get it scrubbed on-demand.
Sourcescrub helps maximize deal origination efforts by enhancing the ability to landscape the prospect playing field. Leverage key business and firmographic data points that meet the ideal investment thesis and apply them as filters against an extensive dataset of companies and sources.
We hope this overview has provided you with a clearer understanding of the job structure within most private equity firms. At Sourcescrub, we are dedicated to developing the best deal sourcing software for M&A professionals. Whether you're part of a larger firm, an investment bank, or a family office, we're eager to connect with you. Let's discuss how our platform can enhance your deal sourcing strategies.
Originally posted on “December 7th, 2020”
