Mod note (Andy) make sure to see the response below by
Marcus_Halberstram: "The main driver, IMO, for diversifying away from pure PE and into other alternative and conventional asset classes is that there is a very clear and distinct shift in the PE business model away from the 20 and towards the 2. In my view, this is for 3 reasons..."
I'm starting business school this year and don't plan on coming back to PE, so I don't really care who the "most prestigious" PE firm is. However, I thought I'd offer some perspective as someone who has worked on the buyside for two years, especially since lots of college students on this forum don't really seem to appreciate how much things have changed over the last 10 years.
***Based on some of the responses, I just want to clarify that I am by no means claiming to be an authority on PE firms. I've worked at one firm for only two years, so most of what I'm saying is not going to be new to anyone in the industry. A lot of it is also hearsay, so feel free to disagree.
My general sense is that PE has become a rather commoditized business. People say that the days of generating returns through financial engineering are over, but operational improvements don't seem to cut it either when everyone just outsources to the same consulting firms. The easily fixable businesses have been picked clean, and things like group purchasing organizations are nothing new. Bankers are also there to make sure that every sellside process is as competitive as possible. If you've received a teaser about a company, you can be sure that every single one of your competitors has as well. Funds that used to return 30%+ back in the 90s and early 2000s now consider 20% to be a win.
A lot of the megafunds have also become much more risk averse. The senior guys have nice cushy jobs, and the founders are old with more money than they could ever spend. They don't need to prove themselves with 35% IRRs when they can make 20% and live comfortably off the management fees. They also don't want their fortunes to be tied to the carried interest of their PE funds, so everyone seems to be diversifying--FoFs, credit,, capital markets, hedge funds, etc.
All that being said, some PE firms have clearly fared better than others.
- Their name is synonymous with PE, but they haven't done very well in the past few years. They had a hard time fundraising this year and only raised $6bn (targeting $8bn). Work culture is similar to /Apollo--generally pretty intense hours and very quantitative/analytical work. ~7% on their flagship 2006 fund.
TPG - This is an interesting one. Very poor recent performance due to a few large deals that completely blew up. Negativeon their '06 fund, and single digits for their current one. Partners aren't getting and I would expect them to start downsizing as their next fund will likely be significantly smaller than the last two. Not an ideal place to start a long term career, but, for associates, I've heard lots of positive things about their culture. They recruited only for their SF office when I interviewed, but I think their NY office is tiny anyways.
Apollo - These guys have some serious balls. They made a huge bet during the downturn buying up the distressed debt of their portfolio co's and basically doubled down on many of their investments. I remember my boss saying these guys were "betting the firm". They made an absolute killing when things recovered though--28% neton their 2008 fund, although a lot of that is probably Lyondell. They're also in the market right now and it looks like they'll definitely exceed their $12bn fundraising target. Some people say they're smart and actually take a view, others say they just made a huge gamble and got lucky. Their associate class is pretty small (~3 people--believe most other megafunds hire like 6-10), and they get worked hard. Only difference is it's not a 2 year and out program.
- Less than a quarter of their AUM is now in PE and that percentage will probably continue to shrink. They're perhaps the best example of a PE firm becoming more of an " " business where the focus is more on AUM growth and management fees rather than absolute returns and performance. Senior guys like Chinh Chu are also no longer in the weeds looking for 5-baggers, so I'd be shocked if they ever pull another deal like Celanese again. That being said, is still one of the most respected names in PE and they have top-caliber people. Their real estate fund is arguably the best in the industry. They also have an interesting tactical opportunities fund that can basically invest in anything.
Carlyle - A bit of a mixed bag because they have an enormous portfolio of different funds. They're probably investing out of over a dozen funds at once. Their last mega-buyout fund was in 2007 and returned ~10%, in the middle of the pack for that vintage, but their distressed fund (strategic partners?) has done better. DC office does aerospace/industrials and also has lots of back-office staff, while NY covers all the other industries. I never really understood why all their industry groups are run so separately. There's minimal interaction among the different groups except at the most senior levels, and each group actually had its own interview process when I recruited. Everyone I know there seems to have very good work-life balance and generally like the culture. They're quite bullish these days, but my sense is they've been paying some very rich multiples for some of their acquisitions.
Bain - Similar to TPG. Definitely not what it once was. I guess operational improvements don't get you as far these days. ~0%on their 2008 fund, and looking to raise $6bn for their next fund. Supposed to be a good place to work, and strong bschool placement. I hated their case study interviews. Don't know anyone here unfortunately, but they're probably the only megafund that consistently hires consultants. Last I heard they were in the market for a $6bn fund but will probably close at around $3bn
- Not discussed as often because they don't focus as much on mega-buyouts, but they just raised a $12bn fund so they definitely belong on this list. Most of their investments are in growth equity, but they invest across the spectrum (as early stage as ) out of one fund, which is pretty unique. One of the oldest PE firms out there and it doesn't look like they're going anywhere. 6% on their 2007 fund. Their energy group does some very creative financings. Culture varies a lot between groups.
(Capital Partners) - Haven't seen them on too many deals despite their size, but my impression is they tend to get in on a lot of club deals. I'm not sure what their story is, so if anyone is more familiar with this group please share your thoughts. I believe their large AUM is a factor of lots of firm/partners money being invested in the fund.
Would love to hear some other opinions, especially from people who've worked at these places.