8/3/12

It's been a big week for me; got a PE offer for next year.

I only have a few days to decide; I've definitely given it a good deal of thought (even before getting the offer), but for those of you who have moved to the industry (especially from consulting), what were the right questions you asked yourself and your future co-workers that made you sure about your decision?

Thanks!

Comments (6)

Best Response
8/3/12

Congratulations on the job. Here are the items I would carefully diligence, particularly in today's market:

1. Capital Availability - How much dry powder do they have to make acquisitions? Where are they in the fundraising cycle? A lot of the pension funds and endowments that represent the backbone of PE limited partners are scaling back on their allocations to alternatives and, even if they're maintaining their allocations, cutting down on the number of managers they use. You don't want to join a fund that is struggling to survive. Everyone will claim they will be fine, but it's often untrue. A recently closed fund or fund that has already announced initial commitments is best.

2. Track Record - Kind of goes hand in hand with having capital, since the guys who have done well typically have a much easier time raising money (though this is not always the case). Private equity funds are finite life vehicles, so if you are going to an established firm, they should have a history of multiple past funds. Ask how those funds have performed and where the current fund is underwriting.

3. Post-Program Considerations - Somewhat delicate subject but not really, since it's important. Ask where former associates have gone (preferably specifics, like MBA program or next company). Does the firm promote its pre-MBA associates (which I assume you will be since you are coming from consulting) to the next level or force you to get an MBA?

4. Compensation - Frankly this is consideration #1, because to some extent all the other considerations are wrapped into this one. Easy for a struggling fund to say they're doing fine; hard for a struggling fund to offer competitive compensation. $100K base + $100K bonus is the starting point for a serious fund, maybe a slight discount to that. Anything much less than that, in my mind, signals a firm of lesser caliber. Compensation's important from an exit perspective, too. Future employers who may not be intimately familiar with your firm's performance and caliber can and will gauge your "league" from your current comp.

5. Backgrounds - The pedigree of your peers says a lot. Where did they come from? Why did they join? I like to see people who were clearly successful and enjoyed what they did before coming to the firm, rather than people who left their former roles burned out, disgruntled, jaded, etc.

Parting note: I consider it a positive sign when senior people talk about their families and seem to have a balanced life and enjoy spending time at home.

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8/23/12
re-ib-ny:

Congratulations on the job. Here are the items I would carefully diligence, particularly in today's market:

1. Capital Availability - How much dry powder do they have to make acquisitions? Where are they in the fundraising cycle? A lot of the pension funds and endowments that represent the backbone of PE limited partners are scaling back on their allocations to alternatives and, even if they're maintaining their allocations, cutting down on the number of managers they use. You don't want to join a fund that is struggling to survive. Everyone will claim they will be fine, but it's often untrue. A recently closed fund or fund that has already announced initial commitments is best.

I agree with this whole-heatedly. If a fund is trying to raise money in this market, it can be very tough. People don't want to lock up their money for 5-7 years in a PE fund right now, liquidity is huge. Especially for a first time fund, the environment is BRUTAL.

re-ib-ny:

2. Track Record - Kind of goes hand in hand with having capital, since the guys who have done well typically have a much easier time raising money (though this is not always the case). Private equity funds are finite life vehicles, so if you are going to an established firm, they should have a history of multiple past funds. Ask how those funds have performed and where the current fund is underwriting.

This goes with number 1. How much have they raised? How many funds? How many in the pipeline? You can't make money if you don't have money. What have their returns been on their past funds.

re-ib-ny:

3. Post-Program Considerations - Somewhat delicate subject but not really, since it's important. Ask where former associates have gone (preferably specifics, like MBA program or next company). Does the firm promote its pre-MBA associates (which I assume you will be since you are coming from consulting) to the next level or force you to get an MBA?

I wouldn't really focus on this personally (maybe that's because if I am at a place I love, that pays me well and I am learning first hand I don't feel the need to sit in a lecture hall with a bunch of Spanish majors who decided they can make more money by getting into business than as a professor) but if you must there are definitely funds that will hire Pre-MBA associates and pay for their MBA if they commit to coming back for X years once finished.... Not a bad deal if you want to go to school.

re-ib-ny:

4. Compensation - Frankly this is consideration #1, because to some extent all the other considerations are wrapped into this one. Easy for a struggling fund to say they're doing fine; hard for a struggling fund to offer competitive compensation. $100K base + $100K bonus is the starting point for a serious fund, maybe a slight discount to that. Anything much less than that, in my mind, signals a firm of lesser caliber. Compensation's important from an exit perspective, too. Future employers who may not be intimately familiar with your firm's performance and caliber can and will gauge your "league" from your current comp.

Show me the money. At this age, cash comp is key. I think 90/90 is ok for a Pre MBA coming out of consulting, but mega funds will pay well above that. A smaller fund may offer some equity comp at the junior level; which, while can be a pain in the ass in the early years seeing so much come as deferred comp, is how you get PE WEALTHY, not IBD RICH. Big difference between someone like my ex-boss pulling in $10mm+ in 2011 from his old firm (mega fund) in equity distributions while trying to start his own thing and enjoying his life, and the chairman of an I-Banking division making $10mm who is still on the road 6 nights a week, taking red-eyes home from Cali, and never seeing his family... I don't know about you, but that's not for me.

re-ib-ny:

5. Backgrounds - The pedigree of your peers says a lot. Where did they come from? Why did they join? I like to see people who were clearly successful and enjoyed what they did before coming to the firm, rather than people who left their former roles burned out, disgruntled, jaded, etc.

Tough to tell in an interview, but see if you can find some people who know them personally or have worked with them in the past. Common connections on LinkedIn?

re-ib-ny:

Parting note: I consider it a positive sign when senior people talk about their families and seem to have a balanced life and enjoy spending time at home.

Great point. One of the biggest positives of making my recent switch was going to a group where people actually wanted to get home at night, take vacations, play golf, have a life and enjoy the money they work so hard to earn. As I write this I am on a flight to LA to hang out for the weekend, left the office at 3pm today, am not going in tomorrow, and mot checking email, nada. Great to be in a place where people cherish life outside the office, so make sure you get that. Makes the life far more enjoyable. (note: I also networked like hell and got REALLY lucky in where I ended up.

Hope this helped.

8/3/12

1 and 4 to me is the biggest

8/4/12

Thanks - this is super helpful. I think they score well here on all 5 of those metrics...and 95% sure I'm taking it.

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8/23/12

PG, can you talk about how you made the move from consulting to PE? E.g. what type of consulting were you doing, and where (MBB, etc.)? I am seeking to make a similar transition and I'm sure the info would be helpful for many others out there.

Thanks and congratulations on the offer!

8/23/12

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