An Interview with a Private Equity Associate

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Not only do private equity firms create jobs by investing in companies, but they also stimulate the economy as a whole, making the market more efficient and productive.

Na­jeeb Baqui is an as­so­ci­ate at a lower-mid­dle-mar­ket energy pri­vate eq­uity firm based in Boston, MA with an office in Houston, TX. Com­ing into pri­vate eq­uity with quite a di­verse back­ground, Na­jeeb has learned from many func­tions in fi­nance; from trans­ac­tion man­age­ment for in­vest­ment banks to con­sult­ing for in­ter­na­tional com­pa­nies, Na­jeeb has ex­ten­sive knowl­edge of all facets of fi­nance. We in­ter­viewed Na­jeeb about the typ­i­cal back­ground of a pri­vate eq­uity as­so­ci­ate and the fu­ture of the in­dus­try.

Here’s what he had to say:

If a position like yours were to appear in the employment section of the classifieds, how might it read?

Someone with a background in corporate finance/investment banking with a strong understanding of mergers and acquisitions, financial modeling, and valuations.

Ability to interface with CEOs, CFOs, and major stakeholders in corporate-level transactions.

What level of education is required to work in your field?

Typically, an MBA is necessary from a top-ten school, but exceptions are made based on experience. You have to be knowledgeable about the space, technically prepared, and well-networked. People usually come into private equity from investment banking but can also come from traditional commercial banking, consulting, accounting firms and from within actual companies with experience in operations. Undergraduate schools play more of a role when applying directly into investment banking as banks such as Goldman, JPMorgan, and UBS typically hire from top tier universities.

Do you have to be licensed or certified in your field?

Not necessarily in private equity. In investment banking, it is typical to have Series 7, 63, and 65 certifications since you are on the sell-side, which means you are selling investment ideas to the buy side. Once you are in private equity, or the buy-side, it is no longer necessary to be licensed.

What are some of your typical day-to-day activities?

On a daily basis, we source new investment opportunities, assess possible exit strategies of current investments, and support portfolio company initiatives. On a typical day, I get into the office, grab a cup of coffee, check my e-mails from the previous night, and prioritize the tasks that I need to do for the day. If I am sourcing new investments, I spend a third of my day calling business owners. The rest of the day I screen and evaluate financials and business plans submitted by business owners. Monday mornings we have our ‘deal call’ with the entire team when we discuss new opportunities in our pipeline and whether pursuing them makes sense or not.

Could you describe the myths vs. realities of your profession?

Myth: Private equity firms destroy jobs.

Reality: Not only do private equity firms create jobs by investing in companies, but they also stimulate the economy as a whole, making the market more efficient and productive.

Myth: In private equity, the investors win and the entrepreneurs lose.

Reality: In reality, private equity allows entrepreneurs and business owners to gain access to capital resources and professionalized services that otherwise they might not have been able to access on their own.

How marketable is a career in this field? Do you feel that there is good job security for this profession?

Private equity is more stable than investment banking, and could also lead you to positions such as board of directors, CEO or CFO at companies you can make an impact with your relevant experience. Private Equity firms are experts in building management teams, professionalizing operations, optimizing capital structures and increasing profitability of companies, all the traits that are applicable to the roles mentioned above.

Do you feel that there is potential for growth in this field?

There is definitely potential for growth in private equity. Once you become a partner, you essentially become an owner of multiple companies that are in your portfolio. The growth of your portfolio companies directly impact the growth of all the stakeholders of the company including the employees. More and more professionals are attracted to Private Equity because of the opportunity to own and build companies, which could be a lot of fun and rewarding.

What’s one of the most interesting or unusual situations that happened to you in work?

One of the most interesting and important aspects of private equity is the ability to be very good with people. When you invest in companies, you have to deal with several stakeholders and it is very important to communicate with everyone clearly, respectfully and directly at the same time. Emphasis on building relationships is very important in this profession.

What do you like most about this career?

I love the fact that you are very entrepreneurial in this role. You are essentially an owner in each of your portfolio companies, and as long as your businesses do well, you do well and everybody wins.

What do you like least about this career?

It is a very satisfying profession if you love what you do. At times you do work long hours but not like investment banking. The work life balance is great as long as you can manage the expectations.

What type of personality traits do you think are desirable for someone going into this career?

A combination of being outgoing and sociable with the ability to also be focused and analytical are important to be successful in this career.

Could you describe a good deal in private equity?

Investing in companies with highly differentiated products or services in a space that is difficult to enter without specialization (high barrier to entry) is considered a good investment. When you have these characteristics, you can command high pricing which results in higher profit margins. It is a plus if the business offers a repeatable service or product, also known as a razor blade business model.

Could you describe a bad deal in private equity?

Low margin businesses with high requirements of capital expenditure are usually not a desirable business to invest in.

What is your opinion on the debated carried interest tax rate?

By lowering tax burdens, government could incentivize business owners and investors to invest more to grow their companies, create jobs and stimulate the economy.

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