Monday, August 4, 2014

What is Private Equity and Which Graduate Business Schools are Ranked as the Best for Private Equity?

Much of this material was obtained from Private Equity Blogger. There are other lists of business school rankings, but the list below is limited to graduate schools that offer programs in private equity. Currently there are no lists of undergraduate schools that offer private equity programs.

If you want to pursue a career in private equity without going through the usual 2-3 years of investment banking work experience and 2-3 years of graduate school, you should read: How to Break Into Private Equity Right Out of Undergraduate with No Investment Banking or Private Equity Internships.    

Another route is to identify undergraduate programs that offer private equity and investment banking courses. Marquette University’s AIM program is now offering a track in Private Equity & Banking that is focused at the undergraduate level. This is one of only a handful of undergraduate business programs that are known to focus on private equity. 
Another private equity undergraduate program is found at the University of Maryland. 

What is Private Equity?

Investopedia defines private equity as capital that is not quoted on a public exchange. Private equity consists of investors and funds that make investments directly into private companies or conduct buyouts of public companies that result in a delisting of public equity. Capital for private equity is raised from retail and institutional investors, and can be used to fund new technologies, expand working capital within an owned company, make acquisitions, or to strengthen a balance sheet. 

The majority of private equity consists of institutional investors and accredited investors who can commit large sums of money for long periods of time. Private equity investments often demand long holding periods to allow for a turnaround of a distressed company or a liquidity event such as an IPO or sale to a public company. 

A private equity firm launches private equity funds which are large pools of private capital used to invest in companies.  These funds are managed by private equity general partners, principals, associates, analysts, in-house or third party marketers–positions depend on the size of the firm.  Fund marketers work to reach a capital goal for a fund from capital sources, such as institutional investors (pension funds, endowment funds, etc.) or high-net-worth individuals.

In a typical buyout: The private equity fund seeks out opportunities to invest its capital.  When the management team discovers a possible opportunity it will conduct due diligence and valuation on the firm to decide how much it should offer and what the potential return on the investment would be.  Then the firm will buyout shares of the company–often using leverage as well as the private capital from the fund–to takeover a controlling interest in the company.

Buyout firms invest long term, as opposed to hedge funds or other investment funds, and will work to improve the company and generate profit through cost-cutting, selling assets and motivating management (who now have more control of the company, answering to the PE management, not ordinary shareholders).  It will usually install an advisory board to guide the company; this board is drawn from the buyout firm’s associates, general and limited partners and others.  Management will receive the kind of support and control necessary to make concrete changes to the company but, if the management is the problem, the buyout firm may install new leadership in the company.

After the private equity firm has expanded or improved the company it will look toward an exit–maybe through an IPO where shares are offered again to the public, or a strategic buyer– or decide to invest more money in the company.  The exit is how the private equity firm makes its money back on its initial investment to give returns to investors.  The hope is that the company can be sold for a significant profit.

List of Top Graduate Schools for Private Equity

There are a very limited number of business schools specifically offering training in private equity but many business schools have courses covering private equity, M&A, buyouts, buying and selling companies and valuation.  This list is from the authors of Private Equity Blogger, who have talked with many graduate business schools about their private equity offerings and programs.

1.     Harvard Business School
2.     Dartmouth
3.     University of Pennsylvania: Wharton
4.     University of Chicago Booth School of Business
5.     The University of North Carolina
6.     New York University
7.     Columbia University Business School
8.     Duke University
9.     Northwestern University Kellogg Business School
10.   Yale School of Management
11.    Stanford Graduate School of Business
12.   University of Virginia Darden School of Business
13.   Cornell University
14.   Georgetown University
15.   University of California, Los Angeles
16.   University of Michigan
17.   University of California, Berkeley
18.   Massachusetts Institute of Technology
19.   University of Texas, Austin
20.  University of Southern California
21.   Indiana University
22.  Arizona State University
23.  Emory University
24.  University of Rochester
25.  Carnegie Mellon University