7/2/12

Noticed quite a few questions regarding FoF on here recently (probably due to recruiting cycle) so thought a thread might be helpful - no PMs if possible.

My background is non-traditional. I'm from the UK, top 10(ish) university, finance degree, joined one of the biggest UK asset managers and completed 18 months of a trainee programme before jumping shop to PE FoF. Majority of my fellow associates have more tradional backgrounds (oxbridge, IBD) so can answer questions from what I know of their backgrounds.

Obviously FoF investing isnt for everyone and the majority on here are more interested in being a GP rather than LP, but hopefully there'll be some interest -please ask away

My time is spent as follows:

Primary Fund DD / modelling / meetings / reference calls / legals - 50%
Annual LP meetings / travelling to meet FMs 20%
Coinvests / Secondaries opps analysis 25%
Boring admin shit 5%

I focus a lot of my attention on EM, but have also worked on mezz, us/eu buyout, frontier and growth capital so have a reasonable understanding across strategies

I'll assume the first question is comp so will get that out of the way....my base is PS75k and bonus (excluding carry as we are not currently at our preferred return) was PS30k - which I am told was very low compared to better years.

Comments (80)

Best Response
11/7/11

Thought a day-in-the-life would be helpful.

As previously mentioned, I spend a lot of time out of the office, but a standary office day would be as follows (this is based on last friday).

8.00am -8.30am Arrive in the office, read emails that came in overnight from Asia / US, try and follow-up with people in HK / BJ asap before they head home for the day.

8.30am-9.00am Skim through FT, WSJ, bloomberg etc to see if there is anything interesting on any of our underlying portfolio companies.

9.00am - 9.45am Call with CFO of one of our GPs to discuss co-invest opportunity in a med tech company. Go step-by-step through their models and question their assumptions and compare with my initial model - usually my earnings growth estimates are significantly more conservative and I need to be 'up-sold'.

9.45am - 10am Discuss call with one of our principles, both feel that we have plenty of healthcare in the portfoio and this doesnt pass our >3x MOIC for serious consideration of a co-invest.

10am-11am Managing Partner of a Indian Mezz Fund who is raising $250m comes in to talk us through the proposal. Past funds have done well but we have signficant concerns about the risk/reward for EM mezz. Meeting focuses on quality of management in these businesses and there disinclination to give away sizeable equity stakes.

11am-12pm Writing up some meeting notes from earlier in the week and sending a few post-meeting DD emails

12.30-14.00pm Lunch presentation at a hotel from one of the US megafunds currently raising $8bn. I hate the strategy, the lack of decent exits and the fact that these businesses are highly skilled marketers rather than highly skilled investors. We wont invest but its good to know what the competitors are looking at. Megafunds are good for people like CALPERS who need to write $500m cheques and investors who rely on consultants for their DD, but for more niche / adventorous players they are not very exciting.

14.30-15.00 Internal meeting to look at our pipeline and discuss travel arrangements. We have three LP meetings in one week in NYC in two weeks time and I'll be attending, always enjoy travelling but these meetings will be exhausting

15.00-16.00pm Reference calls will existing investors in a fund that is about to have its final close. These are probably the best way of getting to know a new manager. On this occasion no new issues arise and we will proceed with our legal review.

16.00-18.00pm emails, meeting notes, bit of modelling but its friday so I'm concentrating on the weekend rather than the work. Leave at 6pm and drink for the rest of the weekend.

Hope that's helpful.

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11/4/11

Sorta unrelated but any chance you could PM me which uni it was? I've just graduated from one which is also top 10(ish) - i.e. been in and out for the past few years.

How hard did you find it to get into PE from AM rather than IBD, and would you say AM has prepared you well for the stuff you do?

11/4/11

Glad to see a discussion other than IB on this forum. I'm interested in FoF and was wondering what your plans are for exit opps or do you want to stay in FoF as a career choice? Also, what's the difference between the work you did in AM vs. FoF?

11/4/11

Thank you samoanboy.
Do you think there is a "path" to enter the FoF business ?
Do you want to go to PE afterwards or not ?
What are the hours compared to IBD ?

In reply to TheSquale
11/6/11
TheSquale:

Thank you samoanboy.
Do you think there is a "path" to enter the FoF business ?
Do you want to go to PE afterwards or not ?
What are the hours compared to IBD ?

usual path is IBD (frequently Financial Sponsors) for 18month - 2 years, then 2 years as an associate and then MBA.

I do co-invests at the moment which is similar to direct PE investing without the sourcing element - no plans to try and make the move though.

Hours are very good. 8-6/7 with weekend work very rare. I travel a lot though (2/3 times a month) and that creates a lot of non office 'working hours'

In reply to Asatar
11/6/11
Asatar:

Sorta unrelated but any chance you could PM me which uni it was? I've just graduated from one which is also top 10(ish) - i.e. been in and out for the past few years.

How hard did you find it to get into PE from AM rather than IBD, and would you say AM has prepared you well for the stuff you do?

I went to Manchester.

It's definitely not the traditional route, some people come to PE FoF through SWFs, family offices etc, where a route from AM is more normal - so its definitely not impossible, but if your target is PE I wouldnt advise AM as your way of getting there

In reply to liliane23
11/6/11
liliane23:

Glad to see a discussion other than IB on this forum. I'm interested in FoF and was wondering what your plans are for exit opps or do you want to stay in FoF as a career choice? Also, what's the difference between the work you did in AM vs. FoF?

I intend to leave the industry in the next couple of years to do further study (possibly MBA) and would then like to get into NGO work - not sure how that'll work out.

MBA is the norm.

11/6/11

That is great Comp. I'm at a mid-market PE shop in the UK and my all-in is less than your Base.

What's LP sentiment on the UK mid-market right now?

11/7/11
11/7/11

Very informative post

11/7/11

wait u work only till 6... thats not bad at all, I thought PE was the same grind of 14 hour days. Also I thought Corp Dev was the lowest hours a day in finance

I want a lady on the street, but a freak in the bed,

Go Bucks!!

11/7/11

He works at a FoF not direct PE

11/7/11

Normally closer to 7pm, but day in question was a Friday.

11/7/11

This is interesting to me, as I've made some good contacts at a European fund that is a blended PE FoF and direct-investment PE fund. What are careers like for a senior associate or junior VP type for people with a due diligence background (picture good MBA + consulting like MBB or OW with a lot of PE DD)?

In reply to Clarkey
11/7/11
Clarkey:

That is great Comp. I'm at a mid-market PE shop in the UK and my all-in is less than your Base.

What's LP sentiment on the UK mid-market right now?

Suprised to hear that. I'm probably a bit older (26) and had a fair bit of operating experience pre entering finance (and started on very good money in AM) so that might explain some of the differential.

I think UK MM is a good space to be in at the moment, but probably would be better accessed through growth capital rather than buyout. The absence of lending from banks is likely to be a catalyst for some good deals going forward. We have one UK MM relationship who are likely to raise again next year and I expect we'll re-up.

11/7/11

Hey Samoanboy....interesting Q&A.

My Q is do you see many (any) people from Big 4 entering the industry? If so what areas do they generally come from?

11/7/11

awesome post thank you!

11/7/11

anything on HFoFs: salary, bonus, exit opps?

11/7/11

Do you think you can join the FoF business as a fresh graduate ?
What do you do when you're more senior in this business ? What do you think is the medium pay after ~10 years of experience ?

11/8/11
In reply to Maherj1
11/8/11
Maherj1:

Hey Samoanboy....interesting Q&A.

My Q is do you see many (any) people from Big 4 entering the industry? If so what areas do they generally come from?

There are none in my firm (on the investment side, our CFO was formally Deloitte) but its definitely possible. I'm not too sure which area they would come from. Sorry that's not very helpful!!

In reply to TheSquale
11/8/11
TheSquale:

Do you think you can join the FoF business as a fresh graduate ?
What do you do when you're more senior in this business ? What do you think is the medium pay after ~10 years of experience ?

Yes there are a limited number of graudate roles, try efinancialcareers etc to find them, you'll probably need a banking internship to get a foot in the door.

Senior people concentrate on: Leadership 'strategic direction', fundraising, client relations, advisory boards and they will head the investment committees where final decisions are made and where frequently ticket sizes will be determined.

Really not sure on 10 year comp, no one at that level really discusses it....if I had to take a guess I would say take a MM PE salary and minus 40%.

In reply to mauriceevans23
11/8/11
mauriceevans23:

anything on HFoFs: salary, bonus, exit opps?

HFoFs have been really struggling recently as investors are questioning their actual 'value-add' (more so than in PE FoF).....salary, bonus, exit opps would all depend on hte size and quality of the Fund....performance fees are key and a lot of the large FoFs are well below their HWMs.

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11/8/11

What would be the exit opps from PE FoF after 2-3 years? is it still possible to make it to ibanking or direct PE? (let's assume the FoF doesnt do coinvest)

thanks for all the good info

11/8/11

That comp is roughly inline for what I've heard for associate role at REPE FoF in NYC (again, they wanted 3 years experience in banking or REPE beforehand)

In reply to samoanboy
11/8/11
samoanboy:
Clarkey:

That is great Comp. I'm at a mid-market PE shop in the UK and my all-in is less than your Base.

What's LP sentiment on the UK mid-market right now?

Suprised to hear that. I'm probably a bit older (26) and had a fair bit of operating experience pre entering finance (and started on very good money in AM) so that might explain some of the differential.

I think UK MM is a good space to be in at the moment, but probably would be better accessed through growth capital rather than buyout. The absence of lending from banks is likely to be a catalyst for some good deals going forward. We have one UK MM relationship who are likely to raise again next year and I expect we'll re-up.

What sort of value do you place on operational capabilities? Looking around, most firms seem to have dedicated Portfolio teams but they look quite reactive - i.e. they only step in when the buisness plan strays or a portfolio copany doesn't meet its targets. Would you like to se a few more Industrialists as GPs?

Another thing I've noticed is that that part of the market is absolutely saturated with guys who have gone: ACA at Big 4 -> Big 4 CF -> PE. From a LP perspective, would this raise concerns in your mind - i.e. they all have the same skill set?

Sorry if we've strayed off topic a tad.

11/8/11

What type of modeling are you doing? Is it 3 statements modeling on direct fund investments, GP portfolio modeling, or your own portfolio modeling?

In reply to Clarkey
11/9/11
Clarkey:
samoanboy:
Clarkey:

That is great Comp. I'm at a mid-market PE shop in the UK and my all-in is less than your Base.

What's LP sentiment on the UK mid-market right now?

Suprised to hear that. I'm probably a bit older (26) and had a fair bit of operating experience pre entering finance (and started on very good money in AM) so that might explain some of the differential.

I think UK MM is a good space to be in at the moment, but probably would be better accessed through growth capital rather than buyout. The absence of lending from banks is likely to be a catalyst for some good deals going forward. We have one UK MM relationship who are likely to raise again next year and I expect we'll re-up.

What sort of value do you place on operational capabilities? Looking around, most firms seem to have dedicated Portfolio teams but they look quite reactive - i.e. they only step in when the buisness plan strays or a portfolio copany doesn't meet its targets. Would you like to se a few more Industrialists as GPs?

Another thing I've noticed is that that part of the market is absolutely saturated with guys who have gone: ACA at Big 4 -> Big 4 CF -> PE. From a LP perspective, would this raise concerns in your mind - i.e. they all have the same skill set?

Sorry if we've strayed off topic a tad.

Operational capability is crucial. Next to generating high quality dealflow and structuring transactions properly, this is probably the most important element. The absence of 04-07 levels of leverage means that multiple expansion needs to be created by improving underlying operations. As I mentioned above, I do a lot of work on EM Funds, where the potential for value-add is greater (particularly through improving corporate governance, financial reporting etc).

To be honest, the vast majority of PE professionals that I meet come from a banking, and to a lesser extent consultancy backgrounds, rather than big four. A team solely comprised of ex big 4 would be a concern, particularly with regard to their abiility to source and structure deals.

In reply to The Biz Kid
11/9/11
The Biz Kid:

What type of modeling are you doing? Is it 3 statements modeling on direct fund investments, GP portfolio modeling, or your own portfolio modeling?

Bit of everything.

For co-invests I do 3 statements (often I will manipulate the GPs models rather than creating my own from scratch, but occasionally I will do it from scratch).

I will also model GP portfolios to try and understand what a Fund is likely to return and to identify where there returns are being generated, which deals they are strongest at etc (this is particularly crucial in secondary transactions)

I model our portfolio to look at likely cashflow movements and overall multiples that we will generate.

In reply to mathiasr
11/10/11
mathiasr:

What would be the exit opps from PE FoF after 2-3 years? is it still possible to make it to ibanking or direct PE? (let's assume the FoF doesnt do coinvest)

thanks for all the good info

MBA is common. It would be rare to move from FoF to Investment Banking, the skills are quite different and I think it would be unlikely for someone to make that 'lifestyle movement'. Moving to a SWF or an endowment is reasonably common. WIthout co-investment experience I think moving to directs (without an MBA) would be very tough.

11/10/11

I have an offer with one of the largest HFoF and I was wondering what sort of modeling and the day to day activities would be? Salary, exit opportunities compared to ibanking?

11/12/11

Do you work with LatAm?

11/13/11
In reply to samoanboy
11/13/11
samoanboy:
liliane23:

Glad to see a discussion other than IB on this forum. I'm interested in FoF and was wondering what your plans are for exit opps or do you want to stay in FoF as a career choice? Also, what's the difference between the work you did in AM vs. FoF?

I intend to leave the industry in the next couple of years to do further study (possibly MBA) and would then like to get into NGO work - not sure how that'll work out.

MBA is the norm.

Just curious - why would you leave the industry? I thought PE was the so called 'exit opp'. You get paid well and work 60 hours a week.

In reply to PIGS
11/14/11
PIGS:
samoanboy:
liliane23:

Glad to see a discussion other than IB on this forum. I'm interested in FoF and was wondering what your plans are for exit opps or do you want to stay in FoF as a career choice? Also, what's the difference between the work you did in AM vs. FoF?

I intend to leave the industry in the next couple of years to do further study (possibly MBA) and would then like to get into NGO work - not sure how that'll work out.

MBA is the norm.

Just curious - why would you leave the industry? I thought PE was the so called 'exit opp'. You get paid well and work 60 hours a week.

I want to move in a different direction - I'd rather be Kofi Annan than Henry Kravis.

11/14/11

Tryna go back to Samoa? It's fucking gorgeous there and the surfing is ridiculous

11/15/11

Do your investors ever question your fee structure, being a FoF? We've seen business in Japan, Korea and Singapore dry up for FoF due to the growing sophistication of institutionals.

- Work at mid-market global direct secondary shop.

In reply to TheMasao
11/16/11
TheMasao:

Do your investors ever question your fee structure, being a FoF? We've seen business in Japan, Korea and Singapore dry up for FoF due to the growing sophistication of institutionals.

- Work at mid-market global direct secondary shop.

Yes absolutely. More sophisticated SWFs / Endowments are not really our core LPs, they are perfectly capable of developing the infrastructure to pick funds themselves. Our LP's tend to be family offices / smaller endowments / pension funds with c$50m to invest in private equity but little capability in the space / trust in consultants.

Also, we do not simply invest in Blackstone, KKR, Silverlake, Bain Capital etc and then charge fees over the top. We focus on more 'off-the-radar' opportunities, predominantly in emerging and frontier markets, where others might struggle to generate dealflow. We also have c30% of the portfolios invested in secondaries (not directs) and co-investments, which adds a little bit of extra value-add in terms of explaining extra layer of fees.

We're not currently in the market, but raised a 2010 Fund with 85% re-ups and several new LPs - so I think we are doing reasonably well - a lot of our competitors seem unable to close a Fund in the current environment having failed to generate decent returns / return capital.

In reply to Solidarity
11/16/11
Solidarity:

Tryna go back to Samoa? It's fucking gorgeous there and the surfing is ridiculous

Think I might try and raise a Samoan buyout Fund, surely there's a market there!!!

In reply to samoanboy
11/17/11
samoanboy:
TheMasao:

Do your investors ever question your fee structure, being a FoF? We've seen business in Japan, Korea and Singapore dry up for FoF due to the growing sophistication of institutionals.

- Work at mid-market global direct secondary shop.

Yes absolutely. More sophisticated SWFs / Endowments are not really our core LPs, they are perfectly capable of developing the infrastructure to pick funds themselves. Our LP's tend to be family offices / smaller endowments / pension funds with c$50m to invest in private equity but little capability in the space / trust in consultants.

Also, we do not simply invest in Blackstone, KKR, Silverlake, Bain Capital etc and then charge fees over the top. We focus on more 'off-the-radar' opportunities, predominantly in emerging and frontier markets, where others might struggle to generate dealflow. We also have c30% of the portfolios invested in secondaries (not directs) and co-investments, which adds a little bit of extra value-add in terms of explaining extra layer of fees.

We're not currently in the market, but raised a 2010 Fund with 85% re-ups and several new LPs - so I think we are doing reasonably well - a lot of our competitors seem unable to close a Fund in the current environment having failed to generate decent returns / return capital.

Interesting angle. We've seen more FoFs geting involved in LP secondaries. Not a bad game, if you have one-to-one relationships with the LPs selling their positions and avoid auctions like the plague.

Do you tend to source GPs that are local (i.e. in the EM) or based somewhere else? And, please don't tell me your invested in China... horrible place that is.

In reply to TheMasao
11/17/11
TheMasao:
samoanboy:
TheMasao:

Do your investors ever question your fee structure, being a FoF? We've seen business in Japan, Korea and Singapore dry up for FoF due to the growing sophistication of institutionals.

- Work at mid-market global direct secondary shop.

Yes absolutely. More sophisticated SWFs / Endowments are not really our core LPs, they are perfectly capable of developing the infrastructure to pick funds themselves. Our LP's tend to be family offices / smaller endowments / pension funds with c$50m to invest in private equity but little capability in the space / trust in consultants.

Also, we do not simply invest in Blackstone, KKR, Silverlake, Bain Capital etc and then charge fees over the top. We focus on more 'off-the-radar' opportunities, predominantly in emerging and frontier markets, where others might struggle to generate dealflow. We also have c30% of the portfolios invested in secondaries (not directs) and co-investments, which adds a little bit of extra value-add in terms of explaining extra layer of fees.

We're not currently in the market, but raised a 2010 Fund with 85% re-ups and several new LPs - so I think we are doing reasonably well - a lot of our competitors seem unable to close a Fund in the current environment having failed to generate decent returns / return capital.

Interesting angle. We've seen more FoFs geting involved in LP secondaries. Not a bad game, if you have one-to-one relationships with the LPs selling their positions and avoid auctions like the plague.

Do you tend to source GPs that are local (i.e. in the EM) or based somewhere else? And, please don't tell me your invested in China... horrible place that is.

We do both. The majority will be local based and with local experience (preferably with a western education) and others will be NY/London based but with extensive local experience and connections - this would be predominantly for a global EM Fund rather than a SE Asia Fund for example.

We do invest in China and have made strong returns from 4/5 of our Funds with the fifth likely to generate a 1.0x at best. The due diligence process is extremely stringent for Chinese investments and we make sure that the manager has very strong government connections in order to limit political risk at the company level. We have avoided the big buyout funds and concentrated on the later stage growth capital / pre-IPO opps.

1/4/12

What was it that made you move into a FoF?

1/4/12

What was it that made you move into a FoF?

1/16/12
5/24/12

samoanboy - Thanks for the Q&A so far, this is great information. I just got an offer from a PE FOF and was hoping to get some input.

What would be the earnings potential in the long run at a FOF? It sounds like the pay is pretty good for the junior guys, but does it level off as you go up? What could you stand to make if you stuck with it for 10-20 years and made it to MD / Principal?

Also, it sounds like it's tough to move from pure FOF work to direct PE. How easy would it be to move from an LP group role to a Co-Investment group and is there a material difference in compensation between the two?

Here's the full story on the situation I'm in at the moment:
http://www.wallstreetoasis.com/forums/commercial-b...

5/25/12

Earnings are dependant on the size of the Fund and performance - paywill tend to accelerate rapidly once you become a partner and take a significant portion of carry. Not going to speculate on numbers, but there are certainly partners in FOFs pulling in well over seven fgures pa.

The move from funds to co-invest is significantly easier than to pure directs (I do both and was hired to do so). Compensation is better and team will tend to come from a more blue-chip background.

5/25/12

I was looking for this thread.

If you're still taking questions:

Can you give an overview of the deal/due diligence process and things you look for when evaluating funds and fund managers?

5/25/12

Thanks for doing this. What's your stance on not having any sell side experience if you wish to end up in Private Equity, direct or FoF? You mentioned that you started of in an asset manager, but did you find it difficult to make the transfer? What disadvantages did you face not having that IBD background?

Fwiw, I'm at a semi-target in the UK, and am interning at an asset management firm this summer, hoping to go into a good buy side role (HF/PE) after graduation.

In reply to Mr. Hansen
5/25/12
Mr. Hansen:

I was looking for this thread.

If you're still taking questions:

Can you give an overview of the deal/due diligence process and things you look for when evaluating funds and fund managers?

Process depends on a number of factors.

we have an existing relationship with the manager (have we invested in previous funds)? - if so this will slightly alter our process, i will answer the question for a fund that we dont have a relationship with (and may never have heard of).

1. Take a call from one of the placement agents that we talk to (these can be from IBs or private groups) - this is the most frequent source of dealflow however we will also approach managers where our network suggests they are good.

2. Have a flick through the PPM / pitchbook. At this point I will make a decision on whether the Fund is a contender for our portfolio or if we think it could be interesting to meet them - c90 per cent of funds will be filtered out at this stage.

3. Initial meeting with myself and an analyst and the main guys in their team. I will look to get a good understanding of strategy, team, alignment and track record. These meetings will last around 90 minutes and will not be too technical, rather we are trying to get an overall impression of what they do, how motivated they are and are there any red flags.

4. Probably 10 per cent of managers we will then meet again (possibly at their offices). One of the senior partners will attend this meeting and we will recap and drill down a bit deeper into technical details and previous deals (we will approach many of these companies without the manager's knowledge for a reference so this stage is quite important). We may have two or three of these meetings and will always meet the wider team and visit the offices.

5. At this stage probably one in three will progress to our DD process. This involves speaking to people in our network, modelling current / past investments, going line-by-line through documents and gaining around 10-15 references from past investments (CEOs/CFOs etc), existing LP's, bankers etc. Throughout this stage we will be in ongoing dialogue with the manager.

6. If there are still no red flags we will progress to legal DD. This is outsourced to a specialist legal firm who have the patience and legal skills to tear apart the offering docs.

7. We will then write an investment proposal. This is a c30 page document which includes qualitative and quantitative analysis and an overview of the investment opportunity / risks etc. These are very time consuming but are the best way of bringing all the information and work together.

8. I will then present the proposal to the investment committee (at our fund this is the whole team) where we will talk through pros and cons, ticket size etc

by this stage we have done so much work that any fund that isnt going to make it through will have been abandoned and therefore about 80 per cent of funds that get to committee will get an investment.

apologies for the poor spelling and grammar - its friday afternoon and i had a few drinks with lunch!!

In reply to Impossible_Living
5/25/12
Impossible_Living:

Thanks for doing this. What's your stance on not having any sell side experience if you wish to end up in Private Equity, direct or FoF? You mentioned that you started of in an asset manager, but did you find it difficult to make the transfer? What disadvantages did you face not having that IBD background?

Fwiw, I'm at a semi-target in the UK, and am interning at an asset management firm this summer, hoping to go into a good buy side role (HF/PE) after graduation.

Having IB experience will be useful as you get a lot more calls from headhunters.

No real disadvantages from my perspective.

In reply to Impossible_Living
5/25/12
Impossible_Living:

Thanks for doing this. What's your stance on not having any sell side experience if you wish to end up in Private Equity, direct or FoF? You mentioned that you started of in an asset manager, but did you find it difficult to make the transfer? What disadvantages did you face not having that IBD background?

Fwiw, I'm at a semi-target in the UK, and am interning at an asset management firm this summer, hoping to go into a good buy side role (HF/PE) after graduation.

Having IB experience will be useful as you get a lot more calls from headhunters.

No real disadvantages from my perspective.

In reply to samoanboy
5/25/12
samoanboy:
Impossible_Living:

Thanks for doing this. What's your stance on not having any sell side experience if you wish to end up in Private Equity, direct or FoF? You mentioned that you started of in an asset manager, but did you find it difficult to make the transfer? What disadvantages did you face not having that IBD background?

Fwiw, I'm at a semi-target in the UK, and am interning at an asset management firm this summer, hoping to go into a good buy side role (HF/PE) after graduation.

Having IB experience will be useful as you get a lot more calls from headhunters.

No real disadvantages from my perspective.

Thank you. Can you give a little insight into how your transition came about? Did you make use of head hunters? If you wouldn't mind, I'd like to PM you my personal situation, and would appreciate your advice.

5/26/12

1.What is Avg age for people to get in PE from other stream like engineering with CFA level 1 ?

2.What qualities some one need to be in PE firm.

3.I have a interest in ER Buy side but if my network get me in PE should I take that offer, assuming I have a technical background in oil annd gas ?

A

5/30/12

"We do invest in China and have made strong returns from 4/5 of our Funds with the fifth likely to generate a 1.0x at best. The due diligence process is extremely stringent for Chinese investments and we make sure that the manager has very strong government connections in order to limit political risk at the company level. We have avoided the big buyout funds and concentrated on the later stage growth capital / pre-IPO opps."

Thanks so much for the Q&A thread.
Curious to hear more on the DD process, how do you make sure the manager is strongly politically connected and what's strong enough? How is DD process on Chinese investments different from others besides the political connection?
What's your opinion on the big buyout funds in China? Are they doing well?

In reply to Impossible_Living
5/31/12
Impossible_Living:
samoanboy:
Impossible_Living:

Thanks for doing this. What's your stance on not having any sell side experience if you wish to end up in Private Equity, direct or FoF? You mentioned that you started of in an asset manager, but did you find it difficult to make the transfer? What disadvantages did you face not having that IBD background?

Fwiw, I'm at a semi-target in the UK, and am interning at an asset management firm this summer, hoping to go into a good buy side role (HF/PE) after graduation.

Having IB experience will be useful as you get a lot more calls from headhunters.

No real disadvantages from my perspective.

Thank you. Can you give a little insight into how your transition came about? Did you make use of head hunters? If you wouldn't mind, I'd like to PM you my personal situation, and would appreciate your advice.

I got the job through a head hunter that I knew through a friend, otherwise it would have been very unlikely that a headhunter would have approached me for this type of job (I tended to get approached only for startup HFs and institutional AM roles).

In reply to c_z
5/31/12
c_z:

"We do invest in China and have made strong returns from 4/5 of our Funds with the fifth likely to generate a 1.0x at best. The due diligence process is extremely stringent for Chinese investments and we make sure that the manager has very strong government connections in order to limit political risk at the company level. We have avoided the big buyout funds and concentrated on the later stage growth capital / pre-IPO opps."

Thanks so much for the Q&A thread.
Curious to hear more on the DD process, how do you make sure the manager is strongly politically connected and what's strong enough? How is DD process on Chinese investments different from others besides the political connection?
What's your opinion on the big buyout funds in China? Are they doing well?

1. Political connections - these will usually be outlined by the GP, then we will look for firm examples of where they have been utilised - this is an important element but not the most important element of EM DD. Our China diligence doesnt differ significantly from our process in the rest of EM, we simply spend a huge amount of time getting comfortable with the people involved and making calls to ex portcos, LPs, ex-employees etc

In reply to energyanalyst
5/31/12
energyanalyst:

1.What is Avg age for people to get in PE from other stream like engineering with CFA level 1 ?

2.What qualities some one need to be in PE firm.

3.I have a interest in ER Buy side but if my network get me in PE should I take that offer, assuming I have a technical background in oil annd gas ?

A

1. That would be a very unusual route, CFA is of little use (I should know, I have one!!). Engineers would normally get an MBA before getting into PE.

2. Great hair.

3. That really depends on whether you want to do AM or PE, I can't really help you there - for what its worth, AM is not a traditional route into PE

In reply to samoanboy
5/31/12
samoanboy:
c_z:

"We do invest in China and have made strong returns from 4/5 of our Funds with the fifth likely to generate a 1.0x at best. The due diligence process is extremely stringent for Chinese investments and we make sure that the manager has very strong government connections in order to limit political risk at the company level. We have avoided the big buyout funds and concentrated on the later stage growth capital / pre-IPO opps."

Thanks so much for the Q&A thread.
Curious to hear more on the DD process, how do you make sure the manager is strongly politically connected and what's strong enough? How is DD process on Chinese investments different from others besides the political connection?
What's your opinion on the big buyout funds in China? Are they doing well?

1. Political connections - these will usually be outlined by the GP, then we will look for firm examples of where they have been utilised - this is an important element but not the most important element of EM DD. Our China diligence doesnt differ significantly from our process in the rest of EM, we simply spend a huge amount of time getting comfortable with the people involved and making calls to ex portcos, LPs, ex-employees etc

Interesting.
Can you comment on the level of sophistication in PE FoF industry in Asia? What are the top 3 characteristics that distinguish the market from the one in the West? Thanks.

5/31/12

What do you like most about working at a FoF? If you could do it all over again, would you still pick the same path?

In reply to c_z
6/1/12
c_z:
samoanboy:
c_z:

"We do invest in China and have made strong returns from 4/5 of our Funds with the fifth likely to generate a 1.0x at best. The due diligence process is extremely stringent for Chinese investments and we make sure that the manager has very strong government connections in order to limit political risk at the company level. We have avoided the big buyout funds and concentrated on the later stage growth capital / pre-IPO opps."

Thanks so much for the Q&A thread.
Curious to hear more on the DD process, how do you make sure the manager is strongly politically connected and what's strong enough? How is DD process on Chinese investments different from others besides the political connection?
What's your opinion on the big buyout funds in China? Are they doing well?

1. Political connections - these will usually be outlined by the GP, then we will look for firm examples of where they have been utilised - this is an important element but not the most important element of EM DD. Our China diligence doesnt differ significantly from our process in the rest of EM, we simply spend a huge amount of time getting comfortable with the people involved and making calls to ex portcos, LPs, ex-employees etc

Interesting.
Can you comment on the level of sophistication in PE FoF industry in Asia? What are the top 3 characteristics that distinguish the market from the one in the West? Thanks.

Not sure how to answer the first question as I dont deal with FoFs iun Asia (i deal directly with PE Funds) - from my limited experience on advisory boards and through referencing the people have been really high quality with excellent western educations - I'd go as far to say that they're more blue-chip than us western FOF professionals - no idea if they're any good at investing though.

1. Greater focus on growth equity rather than buyout, and less distressed/mezz/special sits type stuff
2. Market is much newer and there are less firms with truly long term high quality track records - also the market is much less dominated by TPG, Carlyle, Blackstone etc (although they did raise their funds very quickly - although the money was nearly all from US pension funds that lack the local knowledge to allocate to local managers).
3. There are two parrallel PE markets in China the RMB and USD markets, this means that some deals will only be open to firms that can invest in RMB which rules out a lot of funds who cant get an allocation (read up on something called QFLP for a bit more detail).

Asia funds (predominantly country funds) are my area of 'expertise' so feel free to ask if you want some more detail on any particular firms, countries etc

6/12/12

Hi, I have been trying to get more information on the interview process for a secondary pe fund, but haven't been able to come across any on this site. Could anyone provide more information on the interview process - ie does it include any modelling (LBO, 3 stmt?), potential investment ideas...?? I am currently a 3rd yr analyst/ just promoted to aso at a BB m&a team and been looking at moving to secondaries pe. Any information would be useful! Thanks in advance!

In reply to Jen1230
6/13/12
Jen1230:

Hi, I have been trying to get more information on the interview process for a secondary pe fund, but haven't been able to come across any on this site. Could anyone provide more information on the interview process - ie does it include any modelling (LBO, 3 stmt?), potential investment ideas...?? I am currently a 3rd yr analyst/ just promoted to aso at a BB m&a team and been looking at moving to secondaries pe. Any information would be useful! Thanks in advance!

There will likely be a basic modelling test, but given you're a third year analyst it wont be difficult (secondary modelling is more about generating good assumptions than creating complex models). They will want to test your understanding of the secondary market and the considerations that are required to understand how to calculate a price (relative to NAV), what considerations need to be made for modelling different sectors, industries, timeframes, exit horizons, market conditions etc

In reply to samoanboy
6/13/12
samoanboy:

Asia funds (predominantly country funds) are my area of 'expertise' so feel free to ask if you want some more detail on any particular firms, countries etc

What are your thoughts on the big Pan-Asian funds (e.g. KKR, Bain, TPG)?

For China, would your firm ever consider doing a US-based, China-focused FoF (e.g. Morgan Creek, HarbourVest) in order to access top country funds that are hard to get into (e.g. New Horizons)?

What are your thoughts on the political risks of the 2012 Chinese power shift and how that would effect your existing LP's deal flow? Is this something you currently consider in your DD process?

Thanks for doing the Q&A. I'm also doing PE FoF work and the EM/China allocation can be a tricky one.

In reply to rhapsody1447
6/13/12
rhapsody1447:
samoanboy:

Asia funds (predominantly country funds) are my area of 'expertise' so feel free to ask if you want some more detail on any particular firms, countries etc

What are your thoughts on the big Pan-Asian funds (e.g. KKR, Bain, TPG)?

For China, would your firm ever consider doing a US-based, China-focused FoF (e.g. Morgan Creek, HarbourVest) in order to access top country funds that are hard to get into (e.g. New Horizons)?

What are your thoughts on the political risks of the 2012 Chinese power shift and how that would effect your existing LP's deal flow? Is this something you currently consider in your DD process?

Thanks for doing the Q&A. I'm also doing PE FoF work and the EM/China allocation can be a tricky one.

I'm not sold on the big Pan Asia Funds, they are fundraising behemoths, with highly credible teams, but their fundrasing and levels of capital to deploy means that they are reliant on auction processes and banker led deals, which do not tend to see good pricing. I prefer smaller country/sector funds, where the manager is more likely to have real connections and ability to attract quality dealflow and then have the ability to really make operational improvements (much more important in Asia than US). For the record KKR are head and shoulders above the others you mentioned

No we would never look at a US based FoF, they add zero value to our portfolio. Also there are pretty much zero funds that are hard to access and we have never been restricted or had our ticket sizes reduced (this is almost entirely a US VC phenomena where the top decile funds such as Accel, greylock and Seqouia are hard, but not impossible to access).

2012 power shift is hugely important, however my understanding is that a wholestep change in direction is not on the cards. The crucial politics for the majority of funds will actually be more localised (being able to work with local officials, mayors etc) rather than the top of the pyramid. We definitely consider it and we would shy away from any sectors that are largely reliant on government subsidies/cooperation. Worth noting that highly politically sensitive sectors such as the media, finance etc have stringent restrictions on foreign ownership in China and will therefore be excluded from most $ funds .

In reply to samoanboy
6/13/12
samoanboy:
Jen1230:

Hi, I have been trying to get more information on the interview process for a secondary pe fund, but haven't been able to come across any on this site. Could anyone provide more information on the interview process - ie does it include any modelling (LBO, 3 stmt?), potential investment ideas...?? I am currently a 3rd yr analyst/ just promoted to aso at a BB m&a team and been looking at moving to secondaries pe. Any information would be useful! Thanks in advance!

Hey - thanks a lot. Would you recommend anything in particular to read to gain more insight on the industry/ valuation etc? Thanks!
There will likely be a basic modelling test, but given you're a third year analyst it wont be difficult (secondary modelling is more about generating good assumptions than creating complex models). They will want to test your understanding of the secondary market and the considerations that are required to understand how to calculate a price (relative to NAV), what considerations need to be made for modelling different sectors, industries, timeframes, exit horizons, market conditions etc

In reply to samoanboy
6/13/12
samoanboy:
Jen1230:

Hi, I have been trying to get more information on the interview process for a secondary pe fund, but haven't been able to come across any on this site. Could anyone provide more information on the interview process - ie does it include any modelling (LBO, 3 stmt?), potential investment ideas...?? I am currently a 3rd yr analyst/ just promoted to aso at a BB m&a team and been looking at moving to secondaries pe. Any information would be useful! Thanks in advance!

Hey - thanks a lot. Would you recommend anything in particular to read to gain more insight on the industry/ valuation etc? Thanks!
There will likely be a basic modelling test, but given you're a third year analyst it wont be difficult (secondary modelling is more about generating good assumptions than creating complex models). They will want to test your understanding of the secondary market and the considerations that are required to understand how to calculate a price (relative to NAV), what considerations need to be made for modelling different sectors, industries, timeframes, exit horizons, market conditions etc

In reply to Jen1230
6/13/12
Jen1230:
samoanboy:
Jen1230:

Hi, I have been trying to get more information on the interview process for a secondary pe fund, but haven't been able to come across any on this site. Could anyone provide more information on the interview process - ie does it include any modelling (LBO, 3 stmt?), potential investment ideas...?? I am currently a 3rd yr analyst/ just promoted to aso at a BB m&a team and been looking at moving to secondaries pe. Any information would be useful! Thanks in advance!

Hey - thanks a lot. Would you recommend anything in particular to read to gain more insight on the industry/ valuation etc? Thanks!

Don't know of anything in particular to read...sorry!!

6/17/12

Hi Samoanboy, would a fund accountant (with specialization in pricing NAVs of alternative investment funds) be an interesting/good analyst candidate for a PE FoF?

Colourful TV, colourless Life.

6/17/12

Is it hard? Have you ever been assigned with something you did not know WTF to do? If so, what did you do?

The difference between successful people and others is largely a habit - a controlled habit of doing every task better, faster and more efficiently.

In reply to Bonus
6/18/12
Bonus:

Hi Samoanboy, would a fund accountant (with specialization in pricing NAVs of alternative investment funds) be an interesting/good analyst candidate for a PE FoF?

Probably not, I've never seen someone with that sort of background. Sorry.

Maybe post MBA.

In reply to mhurricane
6/18/12
mhurricane:

Is it hard? Have you ever been assigned with something you did not know WTF to do? If so, what did you do?

Not sure how to answer this.

When I cant do something I ask for help...

7/19/12

Hi Samoanboy,

I have an interview with a small PE fof, would like to know how to go about it, I heard that there is going to be a modelling test? What kind is it and do you have any tips for the interview? PM me if it is better. Thanks!

7/19/12

A bit late to the party here, thanks for doing the Q&A

I'd be very interested in your perspective on trends in LP terms and the fee structure for the PE industry in general (and megafunds in particular, having recently joined one). A few specific questions:

Do you think 2/20 is going anywhere?
Based on anecdotal evidence and talking to people while interviewing, there seems to have been a shift away from deal carry towards fund carry, driven by pressure from LPs. Are you seeing this and do you think deal carry will eventually disappear completely?

In reply to Jeenyus
7/20/12
Jeenyus:

A bit late to the party here, thanks for doing the Q&A

I'd be very interested in your perspective on trends in LP terms and the fee structure for the PE industry in general (and megafunds in particular, having recently joined one). A few specific questions:

Do you think 2/20 is going anywhere?
Based on anecdotal evidence and talking to people while interviewing, there seems to have been a shift away from deal carry towards fund carry, driven by pressure from LPs. Are you seeing this and do you think deal carry will eventually disappear completely?

I think those that can will continue to charge 2/20, however some of the megafunds have started to instigate fee step-downs (post investment period usually) and some (such as blackstone) have reduced fees to 1.75%.

Some funds have started to charge management fee on drawn, rather than committed capital but that is still very much the minority.

Carry is very much fund level, its only really VC where you see deal-by-deal now.

12/4/12

Hi Samoanboy, looks from your posts that you guys have an Asian office? What's it like? Any different from yours?

Also I have an ER background and how would you suggest that I get prepared for a change into a PE related field? Thanks much!

12/5/12

So on the FoF side. I would imagine you do more Qualitative diligence than Quantitative. Correct? and then more modeling on the co-investments?

3/5/14

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