Straight out of undergrad, a year ago, I went through some time off and am now working as an analyst at a PE shop in the lower middle market. Im looking forward to hearing on an evening masters program that I applied to and will probably get in that specializes in the field, and I am studying for the CFA level 1. Goal is to get to a position after the 2 years from now when the masters is done where I can learn the most, with the goal being to open a fund of my own somewhere down the road, with a large amount of luck and some help from intelligent friends, before I'm 30.
What would any of you recommend for targeting as objectives? Where would be the best places to learn? I realize that I am not taking the traditional path of 2 years IB prior to my PE experience, though I figure that passing the CFA level 3 and doing the masters (my firm is obviously lifestyle focused) will probably lend some legitimacy to my modeling abilities. From what I have read, its unlikely that given my current background/course that I would be able to get a job at a megafund, though I will still work my butt off to try if they are the best places to learn. Thoughts are greatly appreciated.
The charter will not lend any legitimacy to your modeling abilities. At least from the point of view of anyone who is familiar with the charter. You should know this if you have been studying for Level I.
I actually just picked up the books the other day. The big thing for me is that I have a somewhat non standard background, with a non finance related UG major. I feel that it'd help to show that I know more of the background of the business, which is what the CFA seems to provide, which would legitimize the modeling skills I already have and which I am also learning at my current position. Sorry if I was unclear about that.
Good, for a second I thought you were planning on taking the test on June 4.
If you're end game is to open up a funded PE shop by the time you turn 30, I can't help but think your time would be spent better doing something other than getting a CFA. From a mechanics/technical standpoint, I'm sure you'll learn how to value a deal, navigate the deal process, and the asset management afterward (depending on your firm's level of involvement). You'll quickly learn how a deal is structured and the math/finance/accounting throughout the normal course of the job. But there's more to it than that.
Who sources deals at your firm? People on this board seem to have mixed feelings about firms that make their associates source deals, but I think that would be a great way to build a network and learn that (often overlooked) part of the business. Maybe I'm biased because I'm at a value-oriented fund that spends a lot of time sourcing (not me personally). But in this climate, there is a lot of money chasing around very few quality deals. So sourcing good deals can be much more difficult than many people think, and I think any early experience you can get doing that will go a long way.
Without a doubt the most difficult aspect of running (let alone starting a new) PE firm is fundraising. I'm sure if you ask anyone who has been involved in that process, they will tell you that it is very, very hard. I believe the average time to raise a fund is around 20 months now, up from 8 months a few years ago. And that average includes name-brand firms with nice IRRs to go with their experience managing billion dollar funds. I just don't know that your CFA will differentiate you from the other ~100s of funds competing for the same money from the same institutional investors, no matter if you're investing out of a $50M fund or $5B fund.
To be honest, I think you can really get ahead and learn a lot by trying to get actively involved in the sourcing/fundraising parts of the business. I am sure if you are set on starting your own PE fund, you'll develop a sense of what you need to learn and the steps you need to take during your time at your current job. It is just my opinion that a CFA charter or even a master's degree in finance will not give you a great return on the time and money spent getting them. I would think this also applies to lateraling to another fund down the road, as you will be more valuable to other firms if you know more than just how to run a deal process (even if they don't expect you to hit the road fundraising or going to conferences to source deals).
On the other hand, getting an MBA from a school that is known for private equity could be an option. You would really build out your network of people who could one day be in a position to get you that job, put you in touch with someone else looking to start a fund, give you money to invest, whatever. From my short time in this job, it appears that it's a people business as much as an investment business. The more people you know in the right places, the better your chances of getting to where you want to be. Just my opinion man. Good luck
Thanks TLM. That explanation offers what I desired. You're a real gentleman. I feel better now in my choice of firms - the analysts here do sourcing as well as the other standard things. It was for that reason that and a couple of other reasons that I really got interested in it from an experience perspective.
Thanks again.
you wont be able to raise a dime for your own fund until you have reached Principal/Partner level at an established fund and have a proven track record of leading successful realized investments.
This will take many many years and it is highly unlikely that you will accomplish this before you are 30!
do you really think LPs are gonna give any money to a 29 year old just because he has a CFA and had an associate role at a PE firm for a couple of years? you will need much more significant credentials then this. Accredited investors didnt become rich by letting just anyone who showed up at thier doorstep manage their money.
You'll definitely need the principal role, and the best way to do that? Sourcing. I think that's one of the cooler aspects of sourcing... it allows you to differentiate yourself a bit more than standard investment associates. Source a couple of killer deals, and you'll be able to push for that promotion and build that track record a lot quicker than at "traditional" firms.
deal_mkr: Not to be arrogant, but it has been done before. Blackstone was started w/ 400k in capital.
Would it not be reasonable to make investments in growth capital for small companies (say, revenues below 10 mil, investments between 250k and 5 mil) to start, then build a track record with those small companies and work your way up with that track record? Thats kinda what I was thinking would be a prudent course of action, though I honestly dont know that much now.
Steve Schwarzman was Lehman's global head of M&A when he left to start BX, and Peterson had held executive positions with the firm... there's a bit of a difference between your situation and theirs.
Problem is, growth equity (and earlier stage) is extremely competitive. It'll be hard as hell finding the diamond-in-the-rough you need to build a track record -- you'll just be left with scraps that the top, second, third and fourth tier VC/GE firms don't want. Private equity these days is a bit different than it was back in the days of Blackstone's $400k fund.
Meph: Definitely, which is why I don't mean to make a real comparison of success between them, and I, given that I'm young and inexperienced. What I'm really getting at though is that they started out with a small amount, and that it is possible to recreate that success (with luck, skill and hard work). I don't think its unreasonable to think that someone could save 400k adjusted for inflation by the time they're 30... My impression is also that there is less competition for small companies w/ regards to growth capital. I wasnt under the impression that competition was as fierce for companies w/ 5 million in revenues. That's my experience, anyways.
here are some more realistic goals for you -
age 45-55 - think about raising your own fund when you can actually add value to a portfolio company/raise $$$ successfuly
Growth companies dont just want your $$$ they want you to bring something else to the table, and sadly this "something else" (operating experience/industry connections) only comes with experience, like 20+ years of experience
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