Question

Describe the typical organization of a private equity firm. What are the main motivating factors that result in this type of organization?

What are the three main traits required of an analyst? What are the keys to promotion for an analyst?

How does the associate job differ from the analyst job? What are the keys to promotion for an associate?

How does the principal job differ from the associate job? What are the keys to promotion for a principal?

What are venture partners and operating partners? What are their roles in a private equity firm?

Answer 1

ORGANIZATION OF A PRIVATE EQUITY FIRM:

• MADE UP OF LIMITED PARTNERS AND GENERAL PARTNERS.
• LIMITED PARTNERS ARE OUTSIDE INVESTORS AND GENERAL PARTNERS ARE PROFESSIONAL INVESTORS
• LIMITED PARTNERS PROVIDE CAPITAL AND GENERAL PARTNERS MANAGE AND POOL THIS INVESTMENT TO PRIVATE EQUITY FIRM.
• LIMITED PARTNERS LIABILITY IS LIMITED TO THE EXTEND OF THEIR CAPITAL CONTRIBUTION.

MOTVATING FACTOR FOR PRIVATE EQUITY FIRM:

• POSITIVE RERURN ON INVESTMENT
• LOW RISK
• LOW PROFESSIONAL INSECURITY

THREE MAIN TRAITS OF AN ANALYST:

• BRINGING INNOVATIVE IDEAS
• PROJECT SUCCESS.
• SAVE MONEY AND TIME OF THE ORGANISATION.
• EXECUTE REQUIREMENTS PERFECTLY.

DIFFERENCE BETWEEN ASSOCIATE JOBS FROM ANALYSTS JOB:

• ASSOCIATE JOB IS ONE POSITION HIGHER THAN ANALYST JOB
• ANALYST ANALYSES TRANSACTION WHEREAS ASSOCIATE JOB IS MIDDLE LEVEL OF OPERATION.
• ASSOCIATE CHECK THE WORK OF ANALYST.
• THE MAIN AREA OF WORK OF ANALYST IS PROJECT RELATED WHEREAS WORK OF AN ASSOCIATE INCLUDES CREATING AND BUILDING FINANCIAL MODELS AND VALUATIONS.

KEYS TO PROMOTION OF AN ASSOCIATE:

• COMPLETION OF PROJECT
• SMOOTH RUNNING OF ORGANISATION
• INCREASED OPERATIONAL PERFORMANCE OF COMPANY.
• TRUST ON MODELS PREPARED BY ASSOCIATE IN LONG RUN.

DIFFERENCE BETWEEN PRINCIPAL JOB AND ASSOCIATE JOB:

• PRINCIPAL ENGAGED IN MORE THAN NE JOB AT A TIME WHEREAS ASSOCIATE CONCENTRATE ON ONE JOB
• PRINCIPAL IS HIGHER IN RANK THAN ASSOCIATE.
• USUALLY TAKES 2-4 YEARS FOR AN ASSOCIATE TO BECOME PRINCIPAL.
• PRINCIPAL MANAGE THEIR SENIOR CLIAENT RELATIONSHIP.
• MANAGE DAY TO DAY AFFAIRS.
• PRINCIPAL REVIEW OUTPUT AND PROVIDE FEEDBACK
• ATTENDING MEETING AS A REPRESENTATIVE

KEY TO PROMOTION OF A PRINCIPAL:

• PROBLEM SOLVING CAPABILITY
• SKILLED KNOWLEDGE
• APPLICATION OF KNOWLEDGE

VENTURE PARTENRS AND OPERATING PARTNERS:

• VENTURE PARTNERS ARE LIMITED PARTNERS AND OPERATING PARTNERS ARE ENEGAGED ARE GENERAL PARTNERS IN A PRIVATE EQUITY FIRM.

ROLE:

• VENTURE PARTNERS PROVIDE CAPITAL.
• OPERATING PARTNERS MANAGE AND POOL THIS INVESTMENT TO PRIVATE EQUITY FIRM.