Many people struggle to distinguish between private equity and investment banking. Private equity focuses on acquiring company shares, while investment banking often deals with the sell side.
“In my career, I have always worked on the buy side. Many students begin their careers in investment banking or consulting before transitioning to private equity,” said Steve Balaban, CFA, Chief Investment Officer at Mink Capital, during a guest lecture on Introduction to Private Equity at the SBM ITB, on Monday (11/25).
The guest lecture was part of a collaboration between SBM ITB and CFA Society Indonesia. Steve, an award-winning lecturer at the University of Waterloo and an expert in private equity with over 15 years of experience, shared his extensive knowledge with students and professionals who attended the session.
According to Steve, private equity involves investing in private companies or acquiring public companies to transform them into private entities. The various stages of investment in private equity include, Friends, Family, and Fools; Angel Investors as Pre-seed Investors; Venture Capital; and Growth Capital or Growth Equity.
Steve explained that perceptions of private equity vary across regions. In Europe and Asia, private equity encompasses all five stages. However, in North America and Canada, it typically refers only to buyouts.
“Usually, we use the terminology from buyouts (North America),” he clarified.
Valuation plays a crucial role in private equity when acquiring company shares. Steve highlighted two primary valuation methods: Relative Valuation and Intrinsic Valuation.
Relative Valuation: Comparing the target company to similar market players using financial ratios like the Price-to-Earnings (P/E) Ratio and Enterprise Value to EBITDA (EV/EBITDA).
In Relative Valuation, the company being valued is compared to similar companies in the market using financial ratios such as Price-to-Earnings (P/E) Ratio and Enterprise Value to EBITDA (EV/EBITDA). While in Intrinsic Valuation, the commonly used approach is the Discounted Cash Flow (DCF) approach, which calculates the company’s intrinsic value based on projections of future cash flows and a risk-adjusted discount rate. Steve then gave advice to students in calculating revenue projections.
“When you forecast revenue, don’t forget to factor in industry analysis, competitors, market growth, new stores, and the economic environment, then you can make a prediction,” Steve said.
Steve also gave advice to students interested in a career in private equity. Usually, second-year university students start to get interested in private equity.
“But often those who work in investment banking or consulting only switch to private equity after a few years,” he said.
Hany Gungoro, CFA, Board Adviser and Financial Consultant at ThinkMap®Profiler, who also attended the session, offered additional advice. He noted that in their 20s, many people are uncertain about their career goals.
“If you get a job, even if it’s not what you initially hoped for, give it your best. Waiting too long can leave you competing with more experienced professionals,” Hany cautioned.
Siti Rakhmawati, CFA, a Board of CFA Society Indonesia member and Director of the Telkom Pension Fund, also addressed the audience. She emphasized the importance of leadership development in the global community and encouraged students to actively engage in the session.
“Private equity is more than just numbers and investments. It’s about identifying opportunities, driving positive change, and creating value. I urge you to explore new areas and apply your skills to benefit society,” she concluded.