Nobody outside finance really knows what private equity is. That's partly by design. The people who do it prefer the obscurity.
[music] It lets them work without the scrutiny that comes with being understood. Here's what it actually is. You find companies, you buy them, usually with borrowed money.
You restructure them, cut costs, grow revenue, make them worth more than you paid. Then you sell them. The difference between what you paid and what you sold for minus the debt is your return.
Simple in theory, brutal in practice. This is what it looks like from the inside. Level one, the associate.
You come from investment banking. Two years at a bulge bracket, enough deal experience to know how transactions work. [music] Enough scar tissue to know what you're walking into.
The PE firm hired you because you can build a model and [music] because you survived banking, which is its own form of credential. Your base salary is 250,000. Your bonus depends on fund performance, which you won't see for years.
Private equity doesn't pay out the way banking does. [music] The money is patient, so is the misery. Your job as an associate is due diligence.
When the firm identifies a potential acquisition, you spend 6 [music] to 8 weeks tearing the company apart. Financial statements going back 10 years. Customer concentration analysis, management interviews, competitive landscape.
You're looking for the story that explains why this company is worth buying and what you [music] can do with it once you own it. You work on three deals simultaneously. Two will die in due diligence.
One might close, might. The deal process is 90% preparation for something that doesn't happen. Your first live deal is a mid-market manufacturing company in Ohio.
400 employees, 32 million in IBIDA. The seller is a founder who built it over 30 years and wants out before he's too old to enjoy the money. The negotiation takes 4 months.
The due diligence surfaces a pension liability the seller didn't fully disclose. The price comes down. The deal closes.
You fly to Ohio for the closing dinner. The founder shakes hands with your managing partner and smiles for photos. He doesn't know yet what the next 3 years will look like for his employees.
You do. You built the model. You know exactly which cost centers are going to get restructured, which middle management layer is going to be eliminated, which benefits are going to be reduced to hit the EBITD dot targets that justify the purchase price.
You eat your steak and drink your wine and tell yourself this is how capitalism works. Companies get more efficient. The economy benefits.
It's not personal. You mostly believe this. Level two, the vice president.
3 years in. You've been promoted. Your comp is higher.
Your role is more complex. As a VP, you sit on portfolio company boards. You're the face of the firm in the room when management presents their quarterly numbers.
and you're the person who has to deliver the message when those numbers fall short. The Ohio manufacturing company missed its year 2 EBITD day target by 18%. The CEO explains the miss.
Supply chain disruption, raw material costs, a customer who reduced orders unexpectedly. All real, all legitimate, also irrelevant to the return model. You sit across from him in a conference room and explain that the board needs to see a path back to plan.
He's been running this company for 8 years. He knows the business better than you ever will. But you know the model and right now the model says he's behind.
You ask him what he needs. He says time. You tell him he has two quarters.
He hits the targets. Not because of anything you did, but because the market shifted in his favor. You take the board materials to the partners and present the recovery as evidence of good portfolio management.
That's how this works. The wins are systematic. The misses are circumstantial.
You lead your first acquisition process from the buy side, a healthcare services company in the southeast. You find it. You pitch it internally.
You run the diligence. You negotiate the terms. When it closes, your managing partner tells you it's a good deal.
That's the highest form of praise you'll get. Your personal life has organized itself around your availability, which is low. Your in portfolio company board meetings, deal processes, investor meetings, management reviews.
The deals don't care about your schedule. Neither does the capital. You start to understand the actual skill in this job.
It's not modeling. Associates can model. It's judgment.
Knowing [music] which risks are real and which are noise. Knowing which management teams will execute and which are telling you what you want to hear. Knowing when to push a company harder and when pushing harder will break it.
That judgment takes years to develop and you're still developing it. Level three, the principle. You're 32 years old and you're being evaluated for principle.
Not yet a partner, but close enough to see it. The difference between VP and principal is authority. As a principal, you run deals without a partner holding your hand.
You represent the firm in negotiations. You make recommendations the investment committee actually [music] considers. Your fund has 12 portfolio companies.
You're responsible for four of them. The manufacturing company in Ohio is preparing for exit. You've owned it for 5 years, grown EBITD DA by 60% through a combination of operational improvement [music] and two bolt-on acquisitions, and the market timing looks favorable for a sale.
Your job now is to run the exit process. You hire an investment bank to run the sale. You prepare the management presentation, the information memorandum, the financial model that tells the story of what this company has become.
[music] You know this company better than you know some members of your own family. You've spent 5 years watching it, studying it, pushing it. When the final bids come in, the top offer is 2.
4 times what [music] the fund paid. After debt repayment, that's a significant return. Significant enough to matter for the fund's overall performance.
Significant [music] enough to matter for carried interest. Carried interest is the 20% of profits that the fund managers take above a certain return threshold. It's the mechanism that makes private equity partners wealthy.
You're not there yet, but you're close enough to see it. [music] The Ohio company sells 400 employees, same as when you bought it. Some of the faces are different.
The pension liability got managed down. The middle management layer got trimmed. The benefits changed.
The company is more profitable than it was and slightly harder to work at. You tell yourself the math is net positive. 380 jobs that still exist, more efficient operations, better competitive positioning.
You mostly believe it. Marcus runs the deal for the buyer. He's a VP at another PE firm, a few years younger than you, moving with a speed that suggests he's been in the room with good mentors.
You spend [music] 6 weeks on opposite sides of a negotiation that is professional and adversarial and occasionally respect generating. [music] He asks the right questions and due diligence. He doesn't accept your answers without verification.
He finds two things your team understated and uses them to negotiate the price down. You let him have one, you hold the other. The deal closes fair.
You have dinner with him after signing. No agenda. [music] just two people in the same industry who spent 6 weeks trying to beat each other and came out with something that works for everyone.
He asks how you got into PE. You tell him. He tells you his version.
The paths are different, but the shape is the same. You both ended up in this room because you were willing to do the work the work requires. He moves to a different firm 6 months later.
You hear about him occasionally through industry contacts. [music] He's making partner track at a larger fund. You think he'll make it.
Level four, the partner. The partnership offer comes on a Tuesday afternoon. Your managing partner calls you into his office and tells you the investment committee [music] has voted.
You're in. Your carried interest allocation starts with the next fund. The base is the same.
The upside is different. Being a partner changes the texture of the job. You're now responsible for raising capital as well as deploying it.
Every 2 to 3 years, the fund goes back to its limited partners, pension funds, endowments, sovereign wealth funds, family offices, and asks them to commit to the next vehicle. You have to explain what you did with the last fund's money. You have to make the case for the next one.
You sit across from the CIO of a state pension fund in Sacramento. She's responsible for the retirement savings of 40,000 government employees. She's deciding whether to commit $200 million to your fund.
She asks about your track record, your team, your investment thesis, your fee structure. [music] She asks hard questions about the deals that underperformed and harder questions about whether your returns are driven by skill or leverage. You answer everything.
The good funds answer everything. [music] The ones that deflect are hiding something. She commits, you add it to the fund total.
The road show takes 3 months and 11 cities. You raise $1. 8 billion.
You come home and sleep for 14 hours. The deals at this level are larger. The scrutiny [music] is higher.
The consequences of being wrong are larger, too. Not just for the fund, but for the companies you buy and the people who work in them. That weight doesn't get lighter as your seniority increases.
It gets heavier. That's what nobody tells you on the way in. You hire an associate who reminds you of yourself 8 years ago.
Smart, hungry, slightly arrogant in the way of people who haven't yet learned what they don't know. You put him on your deals. You watch him build models that are technically correct and strategically incomplete.
You show him the difference, not because you're generous, but because better associates make better deals and better deals make better returns. He'll be a VP in three years, maybe a principal in six, maybe a partner in 12, maybe not. The pyramid narrows, and the people who don't make it aren't necessarily the weakest.
Sometimes they're just unlucky. Wrong cycle, wrong fund, wrong deal that went bad for reasons nobody could have predicted. Level five, the managing partner.
20 years in the fund you're running is $3 billion. Your personal carried interest across multiple funds has made you wealthy in the specific way that private equity makes people wealthy. Not liquid, not immediately spendable, but structurally significant.
Real estate diversified portfolios enough that the number in your bank account has stopped being a source of anxiety and started being a source of a different kind of weight. You sit on the investment committee of your own firm. Now, the deals come to you for final approval.
You've seen enough to know what a good deal looks like and what a deal that looks good actually is. There's a difference, and the gap between them is where the losses live. The industry has changed in 20 years.
More capital chasing fewer deals. Valuations that would have seemed insane when you started are now routine. The returns that defined the asset class in its early years are harder to replicate because too much money is competing for the same opportunities.
You tell your LPs this honestly. Some of them appreciate it. Some of them don't want to hear it.
You think about the Ohio manufacturing company sometimes. It's [music] on its third PE owner now. Changed hands twice since you sold it.
Grown significantly. Acquired competitors. Moved some production overseas.
310 employees now, down from the 400 when you bought it. Better margins, stronger competitive position, [music] harder to work at than it was when the founder ran it. You don't know if that's good or bad.
You know it's true. The associates who sit in the conference rooms now are the same age you were when you started. They have the same hunger, the same [music] models, the same slight arrogance of people who haven't yet learned what they don't know.
You watch them present deals and you hear yourself 20 years ago making the same arguments with the same confidence. Some of them will make partner, some won't. Some will leave for operating roles, tired of the financial engineering and wanting to actually run something.
Some will burn out. Some will build careers they're proud of in ways that the industry would recognize, and some in ways it wouldn't. The job is what it always was.
Find companies, buy them, make them worth more, sell them, do it well enough over long enough, and the returns compound into something that justifies the fee structure and the carry and the years of work that don't show up in any document. Whether any of it means something beyond the numbers is a question the industry doesn't have good language for. [music] You've made things more efficient.
You've created value, at least by the metrics that measure value. You've also presided over decisions that made life harder for people who were just trying to keep their jobs. You sit in your office at 7 in the morning before anyone else arrives.
The fund documents for the next raise are on your desk. The financial statements for your six current portfolio companies are open on your screen. There's a deal in your pipeline that could be the best investment you've ever made or a very expensive mistake and you won't know which for 5 years.
You pour a coffee. You open the first document. You start working.
The numbers don't care what you feel about them. They just tell you where you are. Nobody outside finance really knows what private equity is.
That's partly by design. The people who do it prefer the obscurity. [music] It lets them work without the scrutiny that comes with being understood.
Here's what it actually is. You find companies, you buy them, usually with borrowed money. You restructure them, cut costs, grow revenue, make them worth more than you paid.
Then you sell them. The difference between what you paid and what you sold for minus the debt is your return. Simple in theory, brutal in practice.
This is what it looks like from the inside. Level one, the associate. You come from investment banking.
Two years at a bulge bracket, enough deal experience to know how transactions work. [music] Enough scar tissue to know what you're walking into. The PE firm hired you because you can build a model and [music] because you survived banking, which is its own form of credential.
Your base salary is 250,000. Your bonus depends on fund performance, which you won't see for years. Private equity doesn't pay out the way banking does.
[music] The money is patient, so is the misery. Your job as an associate is due diligence. When the firm identifies a potential acquisition, you spend 6 [music] to 8 weeks tearing the company apart.
Financial statements going back 10 years. Customer concentration analysis, management interviews, competitive landscape. You're looking for the story that explains why this company is worth buying and what you [music] can do with it once you own it.
You work on three deals simultaneously. Two will die in due diligence. One might close, might.
The deal process is 90% preparation for something that doesn't happen. Your first live deal is a mid-market manufacturing company in Ohio. 400 employees, 32 million in IBIDA.
The seller is a founder who built it over 30 years and wants out before he's too old to enjoy the money. The negotiation takes 4 months. The due diligence surfaces a pension liability the seller didn't fully disclose.
The price comes down. The deal closes. You fly to Ohio for the closing dinner.
The founder shakes hands with your managing partner and smiles for photos. He doesn't know yet what the next 3 years will look like for his employees. You do.
You built the model. You know exactly which cost centers are going to get restructured, which middle management layer is going to be eliminated, which benefits are going to be reduced to hit the EBITD dot targets that justify the purchase price. You eat your steak and drink your wine and tell yourself this is how capitalism works.
Companies get more efficient. The economy benefits. It's not personal.
You mostly believe this. Level two, the vice president. 3 years in.
You've been promoted. Your comp is higher. Your role is more complex.
As a VP, you sit on portfolio company boards. You're the face of the firm in the room when management presents their quarterly numbers. and you're the person who has to deliver the message when those numbers fall short.
The Ohio manufacturing company missed its year 2 EBITD day target by 18%. The CEO explains the miss. Supply chain disruption, raw material costs, a customer who reduced orders unexpectedly.
All real, all legitimate, also irrelevant to the return model. You sit across from him in a conference room and explain that the board needs to see a path back to plan. He's been running this company for 8 years.
He knows the business better than you ever will. But you know the model and right now the model says he's behind. You ask him what he needs.
He says time. You tell him he has two quarters. He hits the targets.
Not because of anything you did, but because the market shifted in his favor. You take the board materials to the partners and present the recovery as evidence of good portfolio management. That's how this works.
The wins are systematic. The misses are circumstantial. You lead your first acquisition process from the buy side, a healthcare services company in the southeast.
You find it. You pitch it internally. You run the diligence.
You negotiate the terms. When it closes, your managing partner tells you it's a good deal. That's the highest form of praise you'll get.
Your personal life has organized itself around your availability, which is low. Your in portfolio company board meetings, deal processes, investor meetings, management reviews. The deals don't care about your schedule.
Neither does the capital. You start to understand the actual skill in this job. It's not modeling.
Associates can model. It's judgment. Knowing [music] which risks are real and which are noise.
Knowing which management teams will execute and which are telling you what you want to hear. Knowing when to push a company harder and when pushing harder will break it. That judgment takes years to develop and you're still developing it.
Level three, the principle. You're 32 years old and you're being evaluated for principle. Not yet a partner, but close enough to see it.
The difference between VP and principal is authority. As a principal, you run deals without a partner holding your hand. You represent the firm in negotiations.
You make recommendations the investment committee actually [music] considers. Your fund has 12 portfolio companies. You're responsible for four of them.
The manufacturing company in Ohio is preparing for exit. You've owned it for 5 years, grown EBITD DA by 60% through a combination of operational improvement [music] and two bolt-on acquisitions, and the market timing looks favorable for a sale. Your job now is to run the exit process.
You hire an investment bank to run the sale. You prepare the management presentation, the information memorandum, the financial model that tells the story of what this company has become. [music] You know this company better than you know some members of your own family.
You've spent 5 years watching it, studying it, pushing it. When the final bids come in, the top offer is 2. 4 times what [music] the fund paid.
After debt repayment, that's a significant return. Significant enough to matter for the fund's overall performance. Significant [music] enough to matter for carried interest.
Carried interest is the 20% of profits that the fund managers take above a certain return threshold. It's the mechanism that makes private equity partners wealthy. You're not there yet, but you're close enough to see it.
[music] The Ohio company sells 400 employees, same as when you bought it. Some of the faces are different. The pension liability got managed down.
The middle management layer got trimmed. The benefits changed. The company is more profitable than it was and slightly harder to work at.
You tell yourself the math is net positive. 380 jobs that still exist, more efficient operations, better competitive positioning. You mostly believe it.
Marcus runs the deal for the buyer. He's a VP at another PE firm, a few years younger than you, moving with a speed that suggests he's been in the room with good mentors. You spend [music] 6 weeks on opposite sides of a negotiation that is professional and adversarial and occasionally respect generating.
[music] He asks the right questions and due diligence. He doesn't accept your answers without verification. He finds two things your team understated and uses them to negotiate the price down.
You let him have one, you hold the other. The deal closes fair. You have dinner with him after signing.
No agenda. [music] just two people in the same industry who spent 6 weeks trying to beat each other and came out with something that works for everyone. He asks how you got into PE.
You tell him. He tells you his version. The paths are different, but the shape is the same.
You both ended up in this room because you were willing to do the work the work requires. He moves to a different firm 6 months later. You hear about him occasionally through industry contacts.
[music] He's making partner track at a larger fund. You think he'll make it. Level four, the partner.
The partnership offer comes on a Tuesday afternoon. Your managing partner calls you into his office and tells you the investment committee [music] has voted. You're in.
Your carried interest allocation starts with the next fund. The base is the same. The upside is different.
Being a partner changes the texture of the job. You're now responsible for raising capital as well as deploying it. Every 2 to 3 years, the fund goes back to its limited partners, pension funds, endowments, sovereign wealth funds, family offices, and asks them to commit to the next vehicle.
You have to explain what you did with the last fund's money. You have to make the case for the next one. You sit across from the CIO of a state pension fund in Sacramento.
She's responsible for the retirement savings of 40,000 government employees. She's deciding whether to commit $200 million to your fund. She asks about your track record, your team, your investment thesis, your fee structure.
[music] She asks hard questions about the deals that underperformed and harder questions about whether your returns are driven by skill or leverage. You answer everything. The good funds answer everything.
[music] The ones that deflect are hiding something. She commits, you add it to the fund total. The road show takes 3 months and 11 cities.
You raise $1. 8 billion. You come home and sleep for 14 hours.
The deals at this level are larger. The scrutiny [music] is higher. The consequences of being wrong are larger, too.
Not just for the fund, but for the companies you buy and the people who work in them. That weight doesn't get lighter as your seniority increases. It gets heavier.
That's what nobody tells you on the way in. You hire an associate who reminds you of yourself 8 years ago. Smart, hungry, slightly arrogant in the way of people who haven't yet learned what they don't know.
You put him on your deals. You watch him build models that are technically correct and strategically incomplete. You show him the difference, not because you're generous, but because better associates make better deals and better deals make better returns.
He'll be a VP in three years, maybe a principal in six, maybe a partner in 12, maybe not. The pyramid narrows, and the people who don't make it aren't necessarily the weakest. Sometimes they're just unlucky.
Wrong cycle, wrong fund, wrong deal that went bad for reasons nobody could have predicted. Level five, the managing partner. 20 years in the fund you're running is $3 billion.
Your personal carried interest across multiple funds has made you wealthy in the specific way that private equity makes people wealthy. Not liquid, not immediately spendable, but structurally significant. Real estate diversified portfolios enough that the number in your bank account has stopped being a source of anxiety and started being a source of a different kind of weight.
You sit on the investment committee of your own firm. Now, the deals come to you for final approval. You've seen enough to know what a good deal looks like and what a deal that looks good actually is.
There's a difference, and the gap between them is where the losses live. The industry has changed in 20 years. More capital chasing fewer deals.
Valuations that would have seemed insane when you started are now routine. The returns that defined the asset class in its early years are harder to replicate because too much money is competing for the same opportunities. You tell your LPs this honestly.
Some of them appreciate it. Some of them don't want to hear it. You think about the Ohio manufacturing company sometimes.
It's [music] on its third PE owner now. Changed hands twice since you sold it. Grown significantly.
Acquired competitors. Moved some production overseas. 310 employees now, down from the 400 when you bought it.
Better margins, stronger competitive position, [music] harder to work at than it was when the founder ran it. You don't know if that's good or bad. You know it's true.
The associates who sit in the conference rooms now are the same age you were when you started. They have the same hunger, the same [music] models, the same slight arrogance of people who haven't yet learned what they don't know. You watch them present deals and you hear yourself 20 years ago making the same arguments with the same confidence.
Some of them will make partner, some won't. Some will leave for operating roles, tired of the financial engineering and wanting to actually run something. Some will burn out.
Some will build careers they're proud of in ways that the industry would recognize, and some in ways it wouldn't. The job is what it always was. Find companies, buy them, make them worth more, sell them, do it well enough over long enough, and the returns compound into something that justifies the fee structure and the carry and the years of work that don't show up in any document.
Whether any of it means something beyond the numbers is a question the industry doesn't have good language for. [music] You've made things more efficient. You've created value, at least by the metrics that measure value.
You've also presided over decisions that made life harder for people who were just trying to keep their jobs. You sit in your office at 7 in the morning before anyone else arrives. The fund documents for the next raise are on your desk.
The financial statements for your six current portfolio companies are open on your screen. There's a deal in your pipeline that could be the best investment you've ever made or a very expensive mistake and you won't know which for 5 years. You pour a coffee.
You open the first document. You start working. The numbers don't care what you feel about them.
They just tell you where you are.
