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 £75k and bonus (excluding carry as we are not currently at our preferred return) was £30k - which I am told was very low compared to better years.
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?
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
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?
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.
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 ?
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'
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?
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.
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.
+1 Thanks for posting.
Very informative post
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
He works at a FoF not direct PE
Normally closer to 7pm, but day in question was a Friday.
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)?
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?
awesome post thank you!
anything on HFoFs: salary, bonus, exit opps?
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 ?
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%.
.
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
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)
What type of modeling are you doing? Is it 3 statements modeling on direct fund investments, GP portfolio modeling, or your own portfolio modeling?
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.
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?
Do you work with LatAm?
aaaaaarrgg!
Tryna go back to Samoa? It's fucking gorgeous there and the surfing is ridiculous
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.
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.
What was it that made you move into a FoF?
What was it that made you move into a FoF?
..
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:
//www.wallstreetoasis.com/forums/commercial-banking-vs-pe-fof
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.
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).
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.
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.
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.
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.
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.
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.
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.
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!!
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.
No real disadvantages from my perspective.
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.
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
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.
Great hair.
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
"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?
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.
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?
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!
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?
Maybe post MBA.
Is it hard? Have you ever been assigned with something you did not know WTF to do? If so, what did you do?
When I cant do something I ask for help...
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!
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?
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.
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!
So on the FoF side. I would imagine you do more Qualitative diligence than Quantitative. Correct? and then more modeling on the co-investments?
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