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The private equity industry has developed significantly, and it is possible to observe its active growth during the recent decades. The industry is associated with the provision of investments and administering buyouts for private companies. However, due to its specifics, the industry also faces many challenges during the periods when the markets are not favorable for the growth of new businesses. Therefore, it is important to analyze the key features of the industry, as well as the role of general partners in it. In spite of the fact that the private equity industry depends on all changes in the local and global economics, finances, and investment trends, its development is still observable, and positions in this industry remain attractive to specialists in the sphere of finances.
Features and Challenges Related to the Private Equity Industry
The private equity industry is based on investing in new, small, or potentially profitable businesses by institutional investors or ‘angel’ investors. Representatives of the private equity industry are interested in receiving high returns; therefore, they choose to invest in companies for a long period of time. In addition to supporting new companies, investors are interested in promoting acquisitions and buyouts, as well as improving the positions of their partners (Kiehela & Falkenbach 2015). Decisions regarding investments are made with references to analyzing the current economic situation and the development of the business sector, as well as to forecasting possible benefits. As a result, the industry is characterized by the high dependability of trends in the economic and business worlds.
Furthermore, researchers and practitioners identify the cyclicality in the industry’s development. According to Pictet Alternative Advisors (2014, p. 6), “trends in fundraising and the number of funds demonstrate the industry’s cyclicality and the indirect impact of credit cycles in debt markets on entry and exit multiples.” Therefore, the constant analysis with the prediction of risks associated with investment decisions is one of the key features of the private equity industry. The other characteristic of the industry that is connected with the discussed ones is the possibility to determine new priorities for the investment while referring to the recent trends and focuses on innovation or differentiation (Ghai, Kehoe & Pinkus 2014). The regular assessments of markets are important to provide institutional investments with more variants for increasing their returns, as well as private companies with more possibilities to fund their projects.
While focusing on challenges typical of the industry, it is important to accentuate the impossibility to predict revenues and returns for long-term projects, the low-level probability to calculate possible risks, and the dependence on changes in economic and business environments with the focus on economic crises. The mentioned factors influenced the development of the private equity industry in the 2000s because “the number of funds has fallen from its 2000 peak of 1,923 funds to 1,029 in 2013” (Pictet Alternative Advisors 2014, p. 6). Thus, there are several key factors that can be regarded as challenging to be addressed in the private equity industry.
Role and Skills of General Partners in the Private Equity Firm
The success of the assessment and analysis made for the private equity firm depends on the work of a general partner. Therefore, in order to become an effective general partner, a person should have the developed analytical and decision-making skills supported by the comprehensive knowledge and experience in the sphere of finances. According to job descriptions that are usually provided by recruiters, the generic skills which general partners should demonstrate usually include skills in communication, management, assessment, and cooperation (Careers in private equity 2011). General partners need to contact the representatives of private companies, bankers, investors, and consultants in order to manage the work of the fund effectively; as a result, the focus is on selecting candidates who have the developed leadership and interaction skills. Thus, it is expected regarding the ‘person specification’, which is usually mentioned in job descriptions, that a general partner will demonstrate the highly developed skills in such spheres as the administration, control, communication, evaluation, and collaboration.
However, more attention should be paid to the specific skills that general partners should have in order to control the work of the private equity firm and contribute to building the strong relations between investors and businesses The primary task of a general partner is to raise the capital from institutional investors in order to provide the funding for selected private companies. In contrast to limited partners who are usually regarded as institutional investors, general partners directly perform all the required management in the company (Egon Zehnder International 2012). Thus, general partners are those principals who have the duty of searching the potential investors and managing the investments and capitals which were raised from the limited partners (Kiehela & Falkenbach 2015). From this point, general partners are responsible for the coordination of the work of the private equity fund.
In their work, general partners can also specialize in managing the operations that are associated with the venture capital investments, as well as particular buyout investments. The specific skills that need to be demonstrated by a general partner in his or her daily practice are skills in decision-making in order to attract investors to fund the selected companies; skills in finding and formulating investment opportunities; skills in conducting negotiations; skills in developing financial strategies (Phalippou & Gottschalg 2009). In order to demonstrate these capacities, a general partner is expected to have the developed knowledge in the field of finances and investment. Therefore, recruiters pay much attention to candidates who have the MBA degree and those candidates who have the experience in the field (Careers in private equity 2011). General partners are usually selected from those specialists who worked in the company or industry as associates or managers (Egon Zehnder International 2012). The experience is important, as well as developed leadership skills, since general partners need to demonstrate their successfulness in taking the responsibility for the company’s operations, creating investment opportunities, and developing the productive relationships with different limited partners.
Analysis of Personal Skills
It is also important to analyze the personal skills in the context of seeking the position of a general partner and identify possible gaps in capacities that can prevent from obtaining the desired job. The discussed skills and requirements to the candidate applying for the position of a general partner indicate that the developed knowledge and the experience in the field of investment or similar private equity company are prioritized during the process of selecting the best applicant. However, in spite of a few possibilities to get the position of a general partner without the appropriate experience, it is necessary to analyze the personal skills with the focus on the identified requirements and expectations of recruiters and specialists in the private equity industry. I am focused on obtaining the degree in the field of finances, and this specialization is important in order to seek the desired position of a general manager. However, although I have the comprehensive knowledge in the sphere of finances and investment, I have no required experience. As a result, my practical skills can be discussed as underdeveloped, and I need to pay more attention to enhancing my abilities and competencies.
Nevertheless, in spite of the gaps observed in relation to the development of specific competencies required for the position of a general partner, I have the developed communication and analytical skills necessary to interact with investors and companies. I can also conduct negotiations and select the investment opportunities for the productive cooperation of limited partners and small businesses. I can evaluate available options and conduct the forecasts in order to predict what returns can be expected. In addition, I can demonstrate the developed leadership skills in order to persuade the potential investors to focus on certain small companies or choices for acquisitions. I can perform as an effective leader and a decision-maker while developing the strategy for investments with the focus on the detailed financial and industry analysis.
The discussion of personal and professional skills in accordance with the job descriptions typical of general partner vacancies in private equity firms indicates that I should focus more on the development of practical skills in the field and gain the experience while starting to work as an associate in one of the private equity funds. Generic skills and competencies related to the professional communication, leadership, and decision-making are rather developed, but it is important to work more on applying the theoretical knowledge to practice while performing as a leader in the teamwork and while conducting negotiations. Furthermore, the private equity industry is characterized by active changes according to the latest trends in the sphere of investment and finances, and the development of the specific professional skills should be associated with the constant enhancement of analytical skills to be able to assess the environment appropriately. In addition, skills in management can also be developed with references to the practice, and my priority is to receive the practical experience in the field of finances and investment.
Reference List
Careers in private equity 2011, Web.
Egon Zehnder International 2012, Competency and potential: a model for private equity operating partners, Web.
Ghai, S, Kehoe, C & Pinkus, G 2014, Private equity: changing perceptions and new realities, Web.
Kiehela, S & Falkenbach, H 2015, ‘Performance of non-core private equity real estate funds: a European view’, The Journal of Portfolio Management, vol. 41, no. 5, pp. 62-72, Web.
Phalippou, L & Gottschalg, O 2009, ‘The performance of private equity funds’, Review of Financial Studies, vol. 22, no. 4, pp. 1747-1776, Web.
Pictet Alternative Advisors 2014, An introduction to private equity, Web.
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