So I have an offer to join a PE fund that's doing pretty badly in its current investments. May or may not be able to raise a new fund. The work for the next 3 or so years will be working with portcos, no new deals.
Renegotiated LP agreement, so carry is based on current nav.
Portfolio heavily energy correlated - so optionality here depending on what the Saudis and Russians end up doing. Really could go either way here.
About 30% bump in base on my current role.
Would you or would you not?
I would do some dirty things for a 30% bump in base ... So I would definitely take it
Would you get on a sinking ship without a life jacket, but if they were serving 30% more food.
he has three years to exit .. no one stays anywhere for three years anymore
Yes but after three years of only operating and no deal experience, what do the exit ops look like?
If you're looking to switch down the road into any kind of meaningful role at a PE fund, you need to do/execute new deals and exit deals (exit successful deals). A struggling fund that is winding down will not give you either of these. There is probably a reason they are willing to overpay you on salary. Funds that are underwater on energy investments are way underwater right now (donuts) so I doubt there is much "optionality" in the current prolonged commodity cycle esp. If services weighted
LP agreement (and carry) being renegotiated based on current NAV. Would that change your outlook? I'm thinking about this as a free call option.
Keep in mind all these guys lost their shirts and most of their wealth over the last 24 months. Any carry being renegotiated I highly doubt will trickle very far down the chain, and every energy shop I know is over staffed. If it's your only opportunity to join a PE firm thats one thing. If it's deciding between a big name energy shop and a smaller growing fund, I would choose growing fund all day. Again, you also have to play the options you are dealt and always hustle and make sure you're getting as much experience as you can (and hopefully you like investing and are having fun all the while). Congrats on the offer - definitely a huge accomplishment in and of itself. Good luck
Working for what very well may turn into a zombie fund isn't all that appealing to me, but what is your current role? If it's something very tangential, this could be helpful in getting your foot in the door to something else; if you're already on the buyside (or in IB), I'd probably say no thanks.
Are you going to work on exit deals?
Everyone seems to be focusing on the negatives/pe industry perspective but none of the comments really ask/answer the question of your career goal.
If you are just looking to get into PE then yes, what everyone else said.
However, if you are thinking of a long term career in distressed/operations/turnaround etc. this sounds like a really cool opportunity. Depending on how much involvement you get into the companies it seems like you can develop a really nuanced and valuable skill set. Will you be a traditionally PE deal guy, no. Can you develop a skill set to be a guy PE shops drop into struggling companies (with massive upside mind you) and/or work for a distressed shop that takes an active role, definitely.
This is less about compensation and more about you long term goals . Align your role to those goals.
As a hedgie, do you think the "massive upside" is as large as one would have at a young and growing hedge fund?
I don't know. Irrelevant in my opinion - do what you like don't worry about dollars. Totally different paths.
I think HF is a high vol career that can end in the blink of an eye. Being a turnaround operator is a long term career - you probably aren't having annual wins like a HF but for those that are good and have multiple exits I think they take down large slugs. Apart from the money - one job is research driven and somewhat isolating, the other is probably more project management / team interaction / negotiation / leadership, etc. Do what suits you.
I wonder if their portfolio companies include Blockbuster and Kodak
I had a similar conversation with a buddy who had an offer from Terra Firma. They told him as long as we have portfolio companies you'll have a job. Maybe the same applies to the fund you're talking to.
Did he end up joining?
I did.
He did. By now he's been through two refinancings, a bankruptcy proceeding and a couple add-on acquisitions. Overall not bad experience wise.
I did PE to HF and now looking at PE gigs again.
It's up to you but I'm no longer interested in non-career level roles. For long-term roles I would require deal experience and that means dry powder. However, I don't know your situation/issue.
I wouldn't focus on base salary bump. Hedge funds usually get pretty shitty bases (i.e. $150k) but a higher bonus (150% of base vs. 100% of base in PE). This is generalizing but it's what I've seen from having a dozen friends in PE and in HFs.
if you don't mind me asking, why are you trying to transition back to the PE side?
This deserves a really long in-person discussion which I unfortunately won't be doing here on WSO but I'll try to simplify it in two bullet points.
It's no secret that active long/short funds are not doing well this year and many PMs as well as LPs are questioning the value add and alpha generation. This is the primary reason since I love getting a paycheck and I'm seeing the writing on the wall for our fund. Why not join another fund? Well I'm getting older and as I age I am starting to dislike being someone's junior. I prefer stability and seniority and making my own hours. $5bn+ funds are likely secure enough for my tastes but hard to come by. For those funds in the $500mm range, I see lots of options but I would deal with the same instability as at my current fund.
Related to 1, and this is 100% anecdotal, but our fund talks to 10+ funds in our area. Even with all those smart people working together, I only really have high conviction in less than a dozen or so ideas a year out of 10+ longs and 20-30 shorts in our portfolio. That means that pretty much at any given point, I believe in (at most) ~25% of our names. The problem is that hedge funds have to be in the market 100% of the time with a majority of their capital, and it's not the same as private equity where the portfolio is a continuous linear strategy plan (hopefully).
This is a bad analogy but if you were playing a chess game and only a quarter of your pieces did anything at any given time or worse yet, attacked your other pieces, you would find it frustrating since you are required to play with all your pieces at all times. I'd love a fund that was allowed to return/refund capital, but that wouldn't make any sense for our LPs. Basically, there's too many fucking funds and too much data for active managers to CURRENTLY analyze it correctly. There are funds out there getting live credit card data and still can't get it right on hard line retail stocks. I'm positive that one day we can use the data effectively (and maybe there are funds out there who already do it), but I'm not at such a fund and I haven't seen it yet.
You may be surprised at their ability to raise a new fund. Most insitutional LPs are going to allocate X amount to energy regardless of the clusterfuck that took place the last few years. The question is, is it more or less of a clusterfuck than other energy PE funds?
It's not an energy fund, it's a cross-sector fund that the investment team somehow let get incredibly overweight energy.
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