Private Equity & The MBA Degree

by David Kochanek on

The world of private equity is one that has long been shrouded in wide-ranging conceptions and misperceptions among the general public—and no less so to a large percentage of those residing in the world of business and finance.  What is certain is that the domain of private equity is demanding and highly exclusive—positions are coveted and often difficult to obtain.

Myths abound to be sure, especially when it comes to what it takes to break into the industry. Chief among the myths is the long-standing notion that PE is the exclusive domain of investment banking professionals seeking to leverage their experience into buy-side positions offering stratospheric compensation packages. Even an MBA degree from a prestige school, the myth goes, can’t get around this experience hurdle.

Fact is, there is some truth to the myth. There’s no doubt that private equity has long been viewed as the ultimate exit strategy for a banker and that, in the past, the industry has largely been comprised of individuals with such background.  And there remain certain prerequisites for candidates seeking entry into private equity that skew in favor of banking professionals, including the adept ability with financial modeling and deal structure, networking skills, and often an MBA.

Not Your Father’s Private Equity

The fact is that the private equity landscape has changed significantly in recent years and continues to do so, offering new paths for professionals from myriad backgrounds. It is an industry that is much more multi-dimensional than in the past.

Today’s firms often employ strategies that are more operations-focused, requiring longer investment horizons than in the past. While financial engineering remains a major component in private equity investment, the model employed by many in the industry today is much more holistic in nature. Along the lines of VC investment, firms are very much focused on improving each investment from a variety of angles, including finding operational efficiencies and revenue growth opportunities.

To meet the new needs required by a buy, build and hold strategy, many private equity firms have expanded their focus beyond that of pure financial engineers. They now seek to leverage the skill sets of a more diverse talent pool with experience in a variety of industries and functions capable of managing corporate operations and change. This simply can’t be accomplished through a model that is reliant exclusively on the skill sets of those hailing from investment banking.

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  • PE Associate

    All true but one has to take into consideration that the industry is consolidating given that there is too much money chasing fewer deals, hence the fund raising outlook although improving a bit, is fairly tough, hence future jobs will be a bit scarcer, at least until the capital overhang clears up

  • Jody

    John,

    Over the years and while at BW you have a fascination with only the top 15 schools, any other MBA degree is simply not worth it to you. Spinning program against program is your forte and always has been, reality is you did not even do an MBA or for that matter a course. I think it time for you to spread one’s wings and look at the worth of the degree in general and it’s worth moving forward. I think there is a fantastic story to be told of the glut of MBA programs, how many top 15 grads do not get jobs, the lack of real oversight of the degree and how the AACSB is a joke. The degree is being watered down, that alone is cause for suspicion, academics publish research that is only worthy to other wonky academics in business. The list is endless as is the ridiculous need for a massive building and more to the point tuition. Compare tuitions yoy starting say in 1990 and the inflation rate !

  • TA

    I’m surprised to hear there are top 15 mba’s who are unemployed

  • Pla Pla

    I know personally a HBS MBA stayed unemployed for 10 months after graduation. Nothing wrong with him except he was overestimated opportunities. He accepted salary of 64000 Annually. If you look into stanford career report, you will find people with salary at 52000 in the private sector. Attending Harvard, Stanford, or insead does not mean an open check or prestige, it only means that he/she was there.

  • John A. Byrne

    Jody,

    While it’s true that there is a glut of MBA programs, the truth is that the vast majority of people who get MBAs are highly satisfied with the experience and the outcome. Very few MBAs with degrees from the top 15 schools don’t have jobs. Here is the latest data which shows that roughly nine out of ten in the Class of 2012 had job offers within three months of graduation: http://poetsandquants.com/2012/11/04/how-top-schools-fared-on-2012-job-offers/

    Nonetheless, I agree with many of your points: that their is a lack of oversight of the degree, that AACSB accreditation is hardly an indication of a good MBA program or a worthwhile school, that tuition increases have outstripped starting pay for at least a decade, that academics publish far too much worthless research and aren’t dedicated enough to teaching their students, and that the value of the degree has declined in recent years.

    But the MBA remains one of the few degrees that bestows significant value on its holder and in the very best cases often is regarded as one of the best investments a person can make in his or her life.

  • Dreamer

    I think admissions committee makes mistakes as well. Plus also when you need a diverse class, people come from different backgrounds but a lot of them want the same jobs so some people migth loose out to other more compelling candidates.

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