What does a Private Equity Analyst do?

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  • Written By: John Kinsellagh
  • Edited By: Michelle Arevalo
  • Last Modified Date: 14 November 2019
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A private equity analyst uses sophisticated financial modeling techniques to review the merits of investing in the stock of an operating private company. Most analysts are employed by private equity firms. These manage an investment portfolio or fund, comprised of either a controlling or substantial minority interest in the equity of the private companies in which they invest. Since there is no readily ascertainable market price for stock shares of privately held companies, the single most important role of an equity analyst is to perform an accurate valuation of the business' common stock, in which the private equity firm wishes to invest.

A private equity firm seeks to maximize its investment in the private companies in its portfolio through a variety of different transactions. The firm may seek to offer the shares of the company to the public through an initial public offering. It may also either attempt to recapitalize the enterprise, or sell the company to another corporation — either for cash or in exchange for the shares of the acquiring company. The specific tasks performed by a private equity analyst will vary according to the particular investment strategy employed by the private equity firm at any given point in time.


When an equity fund is reviewing private companies for potential investment, the private equity analyst will most likely perform a due diligence analysis of the company under consideration. Since the value of an enterprise is comprised of many different and varied components, including tangible and intangible assets, the analyst may use sophisticated financial modeling and accounting techniques to ensure that his appraisal of the business captures its true value, or intrinsic worth. He or she may perform discounted cash flow and internal rate of return analyses to support his valuation methodology.

A private equity analyst will also carefully review a private company’s financial statements in order to determine if acquiring an equity position would be suitable considering the investment objectives of the equity fund. In order to make this determination, he may prepare a financial review that computes the present value of a discounted stream of the company’s projected future earnings. As part of his valuation methodology, a person in this position might also examine any competitive advantage the company enjoys by virtue of its dominance in the market.

If the private equity firm is seeking to maximize its return on investment in a company by changing its capital structure, a private equity analyst may prepare financial scenarios under a variable set of assumptions. Such an analysis can help reveal the optimal mix between certain debt and equity instruments, to achieve the highest rate of return for the investment fund. In a stock-for-stock acquisition, the equity analyst will usually assess the value of the stock of the acquiring company by utilizing reliable and accepted business valuation methodologies, to ensure that the transaction meets the profit margin expectations established by the equity fund.


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Post 7

I want to know what is the difference between an investment bank analyst and a PE analyst?

Post 6

Is it all hard work or does the analyst bring creativity to the table?

Post 5

My oh my, LBO and M&A are not valuation models.

Post 4

@Latte31 - While I see why people are drawn to this field I also feel that the amount of hours that a person has to work really does not lead to a good quality of life.

I think I would rather work at a less demanding job and have a more balanced life and take a lower salary then working over 100 hours a week for a substantial salary.

I would imagine that after a while of working these types of hours your personal relationships begin to deteriorate and a certain degree of depression follows. I think that the old cliché of “Money can’t buy happiness” is really fitting here.

In fact it is really the quality of your relationships that really determine your level of happiness in life.

Post 3

@Mutsy - I can totally understand why people want to get into private equity investments. The private equity jobs involve the exciting world of high finance and the compensation is among the best in the industry.

The only drawback is the hours. I was watching a television show about people that worked for a private equity fund on Wall Street and it was brutal. Most of them worked sixteen hour days seven days a week and some worked more.

It was an all consuming job that many people transition out of after a few years because the industry is just too intense. Some people burn out after a few years of working like that. I think that the private equity jobs in the investment banking world are the most prestigious but it does come at a high price. I know I couldn’t do it.

Post 2

Anon147921- That is good to know. I wanted to add that I have read that a private equity career is very sought after. Many people seeking private equity jobs have bachelor’s degrees in finance and accounting and then go on and get their MBA.

A lot of them seek an MBA internship and also have previous banking experience in a high end boutique bank or investment firm. I know the draw to this field is the potential job opportunities leading to very lucrative work.

While the hours are high, many private equity analysts salary can average in the six figures if the private equity analyst develops substantial experience they could transition to a hedge fund and the earnings potential there is in the seven figures.

I think that where you went to college makes a big difference to these firms and can make the opportunity easier to get or harder.

Post 1

Very well written. a private equity analyst uses valuation models like LBO, M&A, DCF to see whether it is a good buy. --Avadhut

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