Hiring freelance Private Equity analysts

You need a financial analyst for your Private Equity fund and cannot find one in your budget. You have to look outside the firm to hire one. How do you go about finding a qualified freelancer? What should you be looking for, what questions should you ask? This article will provide the answers to these questions and more.

A private equity fund is an investment vehicle that uses financial mechanisms to help generate the maximum return possible for investors. The purpose of a private equity fund is to provide long-term capital for companies to improve or grow their earnings and minimize the dilutive effect that raising outside capital has on stock price. Private equity funds are one of the few sources of long-term capital available to companies, while banks may only offer loans, which are not always without strings attached. Most investors will require a minimum holding period, typically five years or longer, prior to exercising any voting rights in the company being invested in.

The financial skills required of a private equity analyst generally include mathematical aptitude (e.g., basic calculus), quantitative analysis (e.g., benchmarking, discounted cash flow model), knowledge of financial markets & institutions (e.g., market capitalization, total return, capital structure), familiarity with basic financial statement analysis (e.g., income statement, balance sheet). The analyst will also need to understand how private equity funds differ from traditional private equity funds and the implications of these differences on the analysis being performed.

The private equity analyst can be found in most multi-national accounting firms with relevant experience in private equity. However, he/she may also be found in boutique investment banks who specialize in advising firms on investment strategies. Another source of a private equity analyst may be from a large professional service firm, such as LEK, Bain, Deloitte, KPMG or Ernst & Young, who have been retained by a private equity firm to provide specialized services. In this case, it is common for the expertise of the analyst to remain with the investment bank following the investment strategy exit.

In searching for a qualified private equity analyst, there are several questions that should be considered. The questions should be asked in the context of the client’s specific needs and budget. If the answer to any of the questions is “no”, then the consultant should be asked to explain why.

What is the analyst’s level of expertise in the relevant industry?

Is this experience relevant to the specific segment of the market in which the private equity firm operates? For example, if a private equity firm is interested in acquiring a particular type of business and has limited experience with that type, then it should ask extra questions about the potential consultant’s ability to understand and identify investment opportunities. By doing so, it will be able to avoid valuable mistakes that can result from investing in an area for which it does not have sufficient expertise.

How long has the analyst been with the private equity firm?

More often than not, private equity firms will want to hire someone who has familiarity with their organization and the individuals within it. If this is not necessarily the case, then an experienced consultant may be able to explain why there are perceived differences in culture between both parties. This will allow for a better understanding of potential issues that would prevent both parties from working well together.

What type of analysis will the analyst perform?

Usually, a typical private equity consultant will conduct an analysis called internal rate of return (IRR). This is because it includes only the cash flows and does not include any benefit costs. If the analysis includes any cost, such as the cost of capital, then it is known as net present value (NPV). Consultants can also perform payback period and benefit-cost ratio analysis.