Leveraged finance: Gateway to Private Equity


Private equity is the destination for most professionals working in investment banking (IB). Traditionally, a stint in investment banking has been thought as a gateway to private equity. Turns out, leveraged finance (LevFin) would be a much better option than IB.  Working in leveraged finance is a better option than working in M&A (mergers and acquisitions) or Equity Capital Market (ECM) department, or DCM (Debt Capital markets.

What is leveraged finance?

Leveraged finance is similar to ECM (Equity Capital Market) and DCM (Debt capital Market) in the sense that all three are about raising money. What’s different, financiers working in leveraged finance work with les- established firms (poor credit rating) that have a hard time raising capital. High –yield bonds and leveraged loans are the most frequently used products in leveraged finance.

The key difference between DCM (Debit Capital Market) and leveraged finance is DCM focuses on investment –grade debts, while leveraged finance focuses on below –investment grade transactions.
The raised capital is used to fund control acquisitions, leveraged buyouts and other investment transactions.

What you do in leveraged finance?
Working in leveraged finance, provides you the much needed exposure required to excel as a private equity investment professional, as you provide strategic advice to companies on raising debt.

You will pitch to current and prospective clients, execute debt issuances for clients, and work with other groups in the bank to provide critical market information and transaction case studies.

Working in leveraged finance prepares you for a career in private equity and private debt better than working in the standard M&A jobs. How?

Why leveraged finance is a better route to PE?

Leveraged finance has a strong focus on underwriting, understanding industries and markets, companies’ financial statements, and capital structures. This is a strong foundation for private equity. Investment banking, on the other hand, has a focus on managing deals. When you close one deal, you move to another and closing deals remains your near –term focus.

This focus on balance sheets is a good preparation for a private equity job. Additionally, private equity requires an additional level of commitment with investors, which can be easily attained in a leveraged finance role and much less in investment banking role. In PE terms, you’re always aligned with the companies you invest in.

When you have been working in investment banking (sell –side), PE / private equity or private debt would be an enriching experience. Further, in private equity, you work as an investor, instead of working as an intermediary or adviser on particular transactions.  Not to mention, a PE job will give you an opportunity to analyze companies to figure out potential companies that you can own outright through leveraged buyout) or take a minority stake in the company.

This is a broad experience for people coming out of school or going to a PE firm after 2-3 years of experience at a major investment bank, corporate finance, or accounting.

Reinforce your experience with a private equity certification
While your experience in leveraged finance gives you requisite exposure and experience to work effectively in a private equity job, a certification will accelerate your chances of getting into a private equity firm. Taking a certification like CPEP (Chartered Private Equity Professional) from USPEC (United States Private Equity Council) adds an extra layer of credibility to your skills and experience, making you standout to top private equity firms.
While CPEP doesn’t necessarily require PE aspirants to have LevFin experience, to take the certification, the Lev Fin experience will bolster your chances of getting into private equity just as much as the experience in DCM, ECM, and investment banking. So if you want to switch to a career in private equity, Lev Fin experience coupled with CPEP is your best option.




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