Private Equity | S&P Global Market Intelligence (2024)

FAQs

What to say when asked why private equity? ›

Investment banking is all about providing capital to companies who need it. Private equity, on the other hand, is about buying companies and then growing them. So, if you're interested in finance and deal-making, investment banking is the way to go.

Dry powder has been increasing worldwide over the past decade and reached record heights in 2023. In 2023, the dry powder of private equity companies reached nearly four trillion U.S. dollars globally, up 400 billion compared to the previous year.

On average, private equity firms target roughly a 20% to 25% internal rate of return (“IRR”) and a 2.5x to 3.5x multiple on invested capital (“MOIC”).

Show your personality: Headhunters meet with dozens of investment bankers every day, so you need to be able to stand out with your own unique personality. Beyond the actual interview, create small talk with all of the people you meet at the headhunting firm and be able to talk about more than just finance.

As a leading global investment firm with a strong track record of success, kkr.com is an organization that aligns with my personal values and professional goals. I am drawn to the company's reputation for excellence, innovation, and commitment to making a positive impact on the world through its investments.

Analysts at all types of private equity firms earn significantly less than Associates, just as Analysts in IB earn significantly less than Associates. In fact, PE Analysts often earn less than IB Analysts! So, you might initially make less money if you start in private equity.

On the whole, investment bankers are drawn to private equity for its long-term focus, greater control over investment decisions, higher compensation, entrepreneurial opportunities, and the opportunity to develop a more diverse skill set.

Breaking into private equity without any investment banking experience can be a challenging task. But, while investment banking might be the traditional pathway to a private equity career, it's definitely not the only way to get there.

Dry powder refers to the reserves of liquid assets that a company or an individual holds, primarily to cover future obligations, undertake new ventures, or navigate through financially turbulent times. This term is often used metaphorically to describe cash reserves, but can also encompass other highly liquid assets.

Why does private equity have so much dry powder? ›

For the past 10 years, private equity firms have aggressively raised new capital, faster than they invested funds already under management. This push led to a continuous rise in uncalled commitments, or “dry powder,” that may be deployed by general partners at any time.

Dry powder: The capital called amount is subtracted from the fund's size/latest close size. If the Called % metric is not reported for a given fund, a benchmark Called % is used instead. Unrealized value: The RVPI % metric is multiplied with the amount of capital called.

There isn't a one-size-fits-all answer, but generally, an IRR of around 5% to 10% might be considered good for very low-risk investments, an IRR in the range of 10% to 15% is common for moderate-risk investments, and in investments with higher risk, such as early-stage startups, investors might look for an IRR higher ...

What's a Good IRR in Venture? According to research by Industry Ventures on historical venture returns, GPs should target an IRR of at least 30% when investing at the seed stage. Industry Ventures suggests targeting an IRR of 20% for later stages, given that those investments are generally less risky.

Whether an IRR is good or bad will depend on the cost of capital and the opportunity cost of the investor. For instance, a real estate investor might pursue a project with a 25% IRR if comparable alternative real estate investments offer a return of, say, 20% or lower.

Examples of solid answers to the “why private equity” question: You want to work with companies over the long-term instead of just on a single deal. You want to get exposed to the operations of companies and understand all aspects rather than just the financial ones (note: “exposed to,” not “control” or “improve”).

Private equity firms are always on the lookout for candidates who are driven, ambitious, and possess a strong work ethic. They want to know that you are willing to put in the hard work and dedication required to succeed in this industry.

Private equity is ownership or interest in entities that aren't publicly listed or traded. A source of investment capital, private equity comes from firms that buy stakes in private companies or take control of public companies with plans to take them private and delist them from stock exchanges.

For business owners, selling to a private equity group can help mitigate personal financial risk. By diversifying personal wealth and reducing the reliance on a single business's success, owners can achieve a more secure financial future.