Why You Don’t Need An MBA To Work In Private Equity

Sophie Manigart: “The number of women and people of color in private equity is still low,” but there is “a growing awareness that this is not reflecting business or society”

Private equity is a notoriously hard industry to get into. But while the traditional path to work in PE is via an MBA, an alternative path is gaining popularity.

An increasing number of private equity firms — including Blackstone, Pantheon Ventures, and Oaktree Capital Management — are recruiting folks directly from their undergraduate degree. This means that the usual MBA path may no longer be a prerequisite to a successful career in private equity.

“Even two years ago everyone would have said that you’d only recruit post-MBA. That just isn’t the truth anymore,” says Anthony Gahan, an executive fellow and instructor of the private equity module at King’s Business School.

However, those who get recruited straight out of undergrad are still a low percentage. “It’s at the cutting edge,” adds Gahan. “If you looked at the amount of people getting into private equity a few years from now, I think it would be substantially higher.”

THE STIFF COMPETITION OF PRIVATE EQUITY

Anthony Gahan: “Students don’t just want to be an investment banker—they want to be entrepreneurs. We’re trying to respond by giving students a well-rounded view of the sector”

Sophie Manigart, professor of corporate finance at Vlerick Business School, says people can now enter the industry with a much broader skill set than before. “Of course, firms still need financial savviness within a team, but they’re looking for multidisciplinary teams,” she says. “Nowadays, you need skills beyond merely financial transactions.”

Vikas Aggarwal, associate professor of entrepreneurship and academic co-director of the Global Private Equity Initiative (GPEI) at INSEAD, says private equity is difficult to get into since team sizes and available positions are relatively small. “Normally, private equity firms have small teams that are making a lot of large investment decisions, so the routes into private equity tend to be idiosyncratic,” he explains.

For many people, private equity is an attractive industry; Aggarwal says that most find these positions more active and exciting than consulting or investment banking. This means that there is a high level of competition for these roles. “You’re acting as a buyer and investor, with an ownership mentality,” he continues. “Being on the buy side is an attractive segment of the financial services industry, so there’s a lot of demand for these jobs.”

According to the Graduate Management Admission Council, Gen Z are more interested in finance and banking than tech compared to millennials due to the instability of the tech sector; now, more stable jobs in finance seem more appealing, which makes working in private equity even more appealing.

A DESPERATE NEED FOR DIVERSITY: ‘IN THE OLD DAYS, IT WAS A WHITE MALE BUSINESS’

Aggarwal thinks we will see more and more people taking an alternative route into private equity since the industry is changing. “It’s becoming much more diverse,” he says. “This is a world where an industrial approach to value creation in businesses matters. Firms naturally need people with a diverse set of backgrounds and skills, and that diversity is key to the industry’s success going forward. I think that’s going to continue to be even more important in the years ahead for private equity firms in order for them to continue to generate value in this highly competitive world.”

In response to the changing financial landscape and diverse interest in the private equity industry, firms are increasingly recruiting folks that don’t fit the status quo of someone who works in private equity—such as women, people of color, and those without an MBA “In the old days, it was a white male business,” says Manigart. “The number of women and people of color in private equity is still low. There’s a growing awareness that this is not reflecting business or society.”

Plus, firms themselves are more diverse in what they’re doing. “For example, Blackstone is looking at investment with permanent capital out of the public markets,” explains Gahan. “It’s looking at fund structures, real estate, infrastructure, internationalization. The skill sets we’re talking about here are much more broad than what was traditionally looked for. I think there is a genuine perception now that if you get diversity early into this industry, then you’ll get better investments,” Gahan continues.

PRIVATE EQUITY EXPOSURE AT AN UNDERGRADUATE LEVEL: ‘STUDENTS DON’T JUST WANT TO BE AN INVESTMENT BANKER—THEY WANT TO BE ENTREPRENEURS’

Vikas Aggarwal: “Understand who you are and what appeals to you; there’s a lot of different ways to add value in the world of private equity”

Not only is the desire to work in private equity growing, so is the industry itself. “Private equity firms are evolving considerably from even ten years ago, where they were specifically fund-driven vehicles,” shares Gahan.

“It used to be much more of a financial business,” adds Aggarwal. “Now, it’s more than that; understanding how to structure investments, look at financial statements, and structure debt is still important, but strategic and operational skills are equally, if not more, important.”

With more institutional funds going into alternative assets, private equity and venture capital are playing an increasingly pivotal role. To respond to those demands, schools like King’s Business School are exposing students to private equity at an undergraduate level; in 2020, a semester-long, undergraduate elective module specific to private equity was launched in Kings’ students’ final year. The first module welcomed 200 students. This year, there are over 550, with the balance between men and women nearly equal. “This is to do with an interest in private equity much earlier in a student’s life,” says Gahan. “Students don’t just want to be an investment banker—they want to be entrepreneurs. We’re trying to respond by giving students a well-rounded view of the sector.”

‘I TELL MY STUDENTS THAT AT SOME POINT IN THEIR CAREER, THERE WILL BE A ROUTE INTO PRIVATE EQUITY’

Even without taking a private equity module during one’s undergraduate degree, it still may be possible to eventually land a role in the industry. According to Aggarwal, so much of it comes down to timing. “It can be difficult to time your job search with a job in private equity; in contrast with investment banking and consulting, private equity doesn’t follow a structured and well-trodden recruiting path. You have to time things well. When firms are raising funds, it’s the time to get in,” he says.

“I tell my students that at some point in their career, there will be a route into private equity,” he continues. “The question is how they build up their skills and careers to get to that point—this could be through education, developing a deep understanding of a specific region or industry, or developing a network of contacts that can be of value to the firms hiring them.”

In Manigart’s experience, those that make their way into private equity—without an MBA—are students that have done internships with multiple banks as they go through their undergraduate studies. “They have to demonstrate real commitment and the will to go beyond what might be normally accepted to prove that they’re interested in the market,” she says.

THE MBA: ‘A SPRINGBOARD FOR CANDIDATES WITH NON-FINANCIAL BACKGROUNDS’

Although many people are able to succeed in private equity without an MBA, Aggarwal says that for candidates who may not have been exposed to the full range of functional areas in their prior roles, an MBA can round out their skill set and help set them up for success in private equity. “Since the paths into private equity are becoming much more diverse, an MBA can be a valuable springboard for candidates with non-financial backgrounds to make their way into the industry,” he says. “It is a platform that provides candidates with the skills in strategy, operations, and finance that are necessary for success in private equity.

GETTING STARTED IN PRIVATE EQUITY: ‘START BY ASKING YOURSELF WHAT VALUE YOU WOULD ADD’

While Manigart says that education helps one succeed in private equity, it isn’t everything; for those who want to get into private equity without an MBA, she advises that they get as much relevant—and varied—work experience as possible. Then, the route into private equity will be to start as an intern or junior analyst, with the ability to potentially work their way up.

No matter which path one takes—whether an MBA or an undergraduate degree—Aggarwal believes that it’s important to think about a career in private equity as collecting a set of building blocks. “I don’t think anyone can say there’s one route that is better than another,” he says.

According to him, when determining which path to take to get into private equity, students have to evaluate their personal skill sets and what their aspirations are. “From there, there will be a route for you into that world of private equity,” he says.

“A good place to start is by asking yourself what value you would add to the world of private equity,” he continues. “Maybe you have a strong network in a particular region or industry to be able to assess better than anyone else the best deals. Or, maybe you really understand an industry and are better able to solve fundamental problems around procurement, logistics, strategy, cost, growth strategies, and e-commerce strategies.”

Aggarwal advises students to be patient with landing a job in this industry—and to think about the long run. “Network and broaden your skill set,” he says. “Understand who you are and what appeals to you; there’s a lot of different ways to add value in the world of private equity.”

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