Article summary: Private equity career advice from consulting firm ghSMART about how to advance from private equity associate to private equity partner.
By Elena Lytkina Botelho and Sapna Sadarangani Werner, ghSMART
Peter, a vice president at a top-quartile private equity fund, walked out of his year-end performance review shattered. He had graduated summa at Princeton and had been the star analyst in his class at Morgan Stanley. For years he was told he was the brightest guy at the firm, but for the second year in a row he didn’t get promoted to partner.
The worst part was that he couldn’t get a clear answer out of the managing partner about what exactly he had to do differently. In desperation, Peter turned to ghSMART because our team had been advising his firm for years. We coached him for the next six months, and by the following review cycle, he got promoted to partner.
Since 1995, our firm has advised over 200 alternative investment firms and their portfolio companies on leadership selection and development, including senior hiring, partner performance reviews, succession management and other top talent priorities. Having coached and assessed over 150 senior private professionals, we know first hand what makes a great partner. To get there, you need to work on making five rites of passage over time:
1. Go from analyzing companies to architecting a path to value creation
- What this looks like: Starting in the diligence phase, you develop a point of view on how to build value in this business and get paid for this value at exit. The best partners look at the full set of operational and capital markets levers, powered by an understanding of the specific business and relevant macro trends. For example, one of our clients attained superior returns on a turnaround investment by refocusing the company on the core business and spinning off a business unit that had higher growth prospects but required more cash and scale than they could afford at the time.
- Tips for success: Declare a “major” in one or more sectors that are in line with your firm’s investment strategy. Roll up your sleeves side by side with the CEOs of your portfolio companies to understand what it takes to build value. Engage operators with experience in the sector and experts with a strategic outlook to supplement your own knowledge.
2. Go from doing deals to sourcing deals
- What this looks like: You proactively source new opportunities versus just doggedly executing deals. You cultivate relationships and have both a strong reputation and point of view that cause others to turn to you. Over time, you become a go-to investor who gets invited to attractive opportunities.
- Tips for success: Map out the ecosystem of key relationships in your sectors of focus (managers, bankers, lawyers, etc.). Keep a spreadsheet, and make a realistic commitment. For example, commit to one meeting and three calls every week. Block out 15 minutes on your calendar every week to review your progress and reprioritize. Build deep relationships with people who own and run companies, not just intermediaries like bankers or lawyers. And don’t underestimate your peers: One of our clients sourced his first deal through a fellow VP at another firm.
3. Go from being an analyst to being a trusted business partner to CEOs
- What this looks like: You are sought out for advice and input on the toughest and most sensitive issues by CEOs and management teams and are able to influence them to take action. You are clear and consistent in your expectations. You help set and stay focused on priorities rather than just asking for every piece of data on the business. You stretch and hold the CEOs accountable without micromanaging them.
- Tips for success: Invest in time on the ground with CEOs and management teams. Build a personal connection to deepen the trust. Be prepared with good insights and a strategy to gain their buy-in on difficult issues. Spend time in the business where the work gets done. For example, ride with salespeople, spend time at the retail location, meet with customers. Peter, for example, jumped at an opportunity to spend six months in a portfolio company leading M&A integration. By walking in the shoes of the operators, he strengthened his credibility and learned how to better influence management teams.
4. Go from being a capital allocator to a builder of high performing management teams
- What this looks like: You recognize that your investment thesis rides on having the right management team in place. You are willing to make tough people-decisions where necessary.
- Tips for success: Incorporate a discussion of management team strengths/risks in your investment committee memos. Translate your investment thesis into a “scorecard” to define critical outcomes and cascade those down to key leaders in the company. Take time upfront to set clear expectations and communication cadences with the management team. Invest time and thought in key hiring decisions, and stay ahead of difficult decisions like leadership changes and succession. Move quickly on underperforming CEOs.
5. Go from being a brilliant analyst to an investor who plays to highest and best use to grow the firm’s profits
- What this looks like: You work smart, not just hard. You know how to select and manage a team, attracting followership from associates and analysts in your firm and developing them in their careers. You are well prepared for both internal and external meetings, able to engage on the key details of a deal as well as the big picture.
- Tips for success: Look at your calendar through a “3D” lens. What do you really need to “do” — vs. “delegate” or “delete” — to free up time for other activities like strategizing, deal sourcing and relationship building? Find ways to maximize the leverage you get from your team. For example, do better upfront planning or give more real-time constructive feedback.
We know all this may sound simple, but is not easy. Seek out and embrace feedback to help you direct your growth, including doubling down on your strengths. Consider seeking out a mentor or coach who can help you articulate two to three specific development goals and actions at a time — and stick to them!
Elena Lytkina Botelho (email: email@example.com) and Sapna Sadarangani Werner (email: firstname.lastname@example.org) are consultants with ghSMART. They advise private equity firms and major corporations on their highest priority leadership challenges including management due diligence, talent selection, top team effectiveness, firm development, and succession planning.
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Editor’s note: This story was given a new headline in May 2016. The original headline was “Five tips for making partner at your private equity firm.”