Insights on Private Equity

By Jolie Fong

The Discover+ Series is a series of events, delivered through online digital solutions, that give students the chance to speak directly with working professionals, and learn about careers they aspire to enter. Given the developments in the COVID-19 situation, Advisory is keen to provide support to the many students who are experiencing woes in this time of disruptions, by digitalising professional mentorship. 

The Discover+ online panel on Private Equity, held on 1 December 2020, featured four professionals in the sector: Dominic Soon (Moderator), Vice President at GIC Private Equity; Alan Tan, Vice President at Morgan Stanley; Kelvin Fu, Director, Strategic Investments & Business Development at Gunung Capital; and Zachary Lee, Director of Investments (Southeast Asia) at EDBI Pte Ltd. Attendees included students and young professionals curious about the private equity space and how to best position themselves for the industry.

Private equity is the process of buying a business, growing it, and selling it to recover capital.

Private equity is less transparent in nature than public equity, and is more organic because all companies start as private ones. When a firm goes public, it makes a conscious decision to disclose a lot of information for investors to make decisions. In PE, there is no obligation to do so. A PE analyst has to practice good judgement in identifying trustworthy companies to invest in while acting on this limited information.

Venture capital, while also defined as investing in private companies, looks at investing through a different lens. Venture capital is funding given to young businesses that show growth potential, while PE firms also invest in more established firms on top of that.

Private equity spans a wide range of disciplines and sectors, and what you do depends on the nature of the firm. It could invest in a specific industry, or specialise in raising funds for growth capital or buyout capital.

Generally speaking, private equity Analysts have two big areas of responsibilities: looking at new investments and managing current investments.

To source for investment ideas, analysts do calls with fund managers or the management of potential investment-worthy companies, and get to know their market view as well as the state of the business.

Some PE firms do not have a focus on any particular industry, so you will have to read research reports to understand the industries you want to invest in. You will have to identify industry champions, the company’s niche and many other business factors, as well as do extensive commercial due diligence in making sure the company meets operational requirements (technology, tax, legal, etc.). After doing research, analysts must write and present proposals to the investment committee to get their approval.

During this pandemic, firms are mainly focused on existing portfolio management and supporting the businesses they have invested in by preserving the value of their asset. For example, if a case of infection surfaces in a particular building, the PE firm with a stake in that property may ensure that disinfection protocols are adhered to in order to protect the value of the property.

Private equity is a very holistic place in terms of character; no day is the same. You get to meet different people and learn to build relationships, and you will learn to develop an understanding of nuances within the politics of organisations and countries, across different sectors. Private equity can also equip you with skills that can be applied to your personal life, for example in making personal investments. There is also a social impact aspect to private equity – deployment of capital can help to create jobs and do good for society.

Ideally, you would possess an understanding of how business works through hands-on experience. Entrepreneurs who have the ability to do business and grow a company are the best example of that.

Skill-wise, we look out for people who have an eye for detail and a knack for storytelling – a big part of PE being able to articulate an investment thesis in a coherent manner. Technical skills are a must because of how easy it is to access knowledge nowadays – for example, being good with numbers and understanding what they mean is crucial. We also value people who demonstrate a curious, proactive attitude towards work, because PE demands a lot of on-the-job learning.

While technology goes a long way in helping us gather resources and information more quickly, it is unlikely to erode jobs in the way that it has in other industries. The level of creativity and problem-solving skill demanded cannot be substituted with machines. Private equity is very much a relationship-based business and information is harder to obtain here than in public markets, hence making technology more of an enabler than a replacement.

The hours in PE are no doubt long, and the ability to control your time in this industry is quite limited, especially with global organisations, where there will be a lot of international calls across time zones and you have to respond to issues at very short notice. As you progress and work becomes more intuitive and it gets easier to balance your time, but in the beginning the learning curve will be quite steep and you will be expected to put in the hours.

This varies from firm to firm. There are some firms who would not invest in “dangerous” sectors like firearms, the military, and gambling. ESG (environmental, social and corporate governance) plays an ever-growing role in investment decisions; the need to balance corporate citizenship and social capital with financial returns is causing a fair bit of tension in PE. For example, there might be some firms who will not invest in companies that extract oil or consume natural resources. There is pressure on PE firms to demonstrate that they are not just chasing profit, but are also considering what their actions entail for people outside of the deal ecosystem.

When making investment decisions, there is bound to be disagreement within the firm, so we need to be respectful of one another’s views and encourage democracy and debate. Everyone should be aligned when the decision is made.

There is great demand coming from companies that leverage technology in their business. For example, e-commerce and tech firms are looking into setting up warehouses for logistics and data centres to build up technical capabilities. Companies who can disrupt the industry with novel software or digital products and radical business models are particularly interesting.