Mezzanine Finance ---> PE?

WSO Community -
I'm currently an associate with a large mezzanine fund and am interested in making the transition to PE. My understanding is that there is significant overlap between skillsets of the two professions, although I was curious how the WSO PE community perceived mezz professionals. Does anyone have any experience in making the jump? Is it possible, or mezz professionals ranked below i-bankers etc.? (For reference, I started my career in public accounting at a big four firm).

Also, if any of you have any reading/learning recommendations specific to PE that would allow me to best position myself, that would be appreciated. Have picked up a few books on PE and strategy, and have spent some time shoring up my modeling so far.

 

Also somewhat curious. I’m currently in IB but looking around at some direct lending/mezz funds and wondering if a transition is possible from the private credit to private equity side after a period (associate to associate lateral position). Always nice to have options...

"I know you think you understand what you thought I said but I'm not sure you realize that what you heard is not what I meant."
 

It really just depends on whether the deals you've worked on (and as a result the skills you've developed) are comparable. Are you on the execution side of the mezz transactions? Do you fund mostly sponsor-related deals? Any equity co-invest?

It could potentially be a very easy transition in some cases, specifically in the lower middle market where sponsors/mezz investors are usually pretty well aligned on the same deals

 

Interesting. So has anyone had the experience where they’ve seen someone move from a top Mezz fund/BDC into PE?

"I know you think you understand what you thought I said but I'm not sure you realize that what you heard is not what I meant."
 

Does your firm have a history of placing people into PE after 2 years? If so, you could reach out to people who have gone down that path and ask how they approached it with the senior folks at your current firm. That's the first thing I would do. It could be risky to let your bosses know you are thinking about leaving, especially if they expect you to be there beyond 2 years. However, if they explicitly stated and expect you to leave after 2 years then they shouldn't be surprised that you are starting to look now, given the early recruiting cycle for PE.

A lot of this comes down to your read on your bosses. If you can have a candid conversation with them about your long term goals (both geographically and role) and show them that you really enjoyed your time with them but think DC/PE are better fits then I would be surprised if they weren't supportive of this.

 

I wouldn't ask senior partners for a referral to one of the sponsors they cover. I would definitely network with the associate/vps that you are working with on deals. they may be able to help you or know other groups that are looking. i will say its not easy to go mezz -> PE, but definitely not impossible. Most of the guys at my mezz shop are credit focused, through and through.

 

Moving from credit to equity is very hard, whatever the seniority of the debt you invest in. It’s a different mindset and ultimately a different job. You ask yourself different questions (down- vs up-side) and - just to make one example - in PE you have to think about exit options for the company, M&A targets, etc which are kind of irrelevant for a credit analysis (even in Mezz).

This is especially true for MF PE. Clearly there will be an exceptional guy which makes the transition in some MM-LMM shop, mine is a general comment. It’s feasible: yes. It’s likely: absolutely not.

 

Damn. That wasn‘t the thing I wanted to hear :D as I heard moving from junior debt/mezz to equity is somehow „doable“.

I am currently a first year Investment Analyst and my fund (UMM) does mezzanine as well as common equity investments (regular minority investments) + I did two PE and M&A internships (don‘t know how relevant they are for a FT position though) and plan to switch to PE in about 1-2 years.

Do you think I can put myself in a good interview situation?, e.g., highlighting equity investments in my CV etc.

But thank you anyway!

 

Damn. That wasn't the thing I wanted to hear :D as I heard moving from junior debt/mezz to equity is somehow „doable".

I am currently a first year Investment Analyst and my fund (UMM) does mezzanine as well as common equity investments (regular minority investments) + I did two PE and M&A internships (don't know how relevant they are for a FT position though) and plan to switch to PE in about 1-2 years.

Do you think I can put myself in a good interview situation?, e.g., highlighting equity investments in my CV etc.

But thank you anyway!

This is doable from an analyst seat to come in as an associate however you likely need to trade down in fund sizes, assuming you are at one of the more “ex-IB” type of PC firms rather than “ex-CB” type.    I wouldn’t emphasize minority co-invests as ultimately your equity underwriting is significantly lighter than an equity sponsors and may lead to poor interview question outcomes if you lean into it too much.

The alternative is to trade up in fund sizes to MF private credit which also isn’t a bad outcome.  R

 
Most Helpful

Perhaps my experiences will be useful and can shed some light on this question... for context I started out in lev fin, went into a pre-MBA role at a LMM mezz fund / BDC (that also did some buyouts) then back to banking post-MBA (albeit in an M&A role) then BACK into private credit then to a fund - where I currently sit - where when I joined we were doing mostly credit investments (senior and mezz) but have since been creeping down the capital stack as we've grown... i.e., I find myself spending most of my time on control-oriented investments. So I've been around the block I guess.

Based on my experiences, my take is that you are looking to move down the capital structure a bit and consequently need to be able to demonstrate - at least at the associate level - that on the deals you worked on you have not only a bulletproof understanding of the credit case (downside analysis, etc.) but also a very strong command of the equity case that the sponsor underwrote. If you can articulate this (we are assuming your technicals are sound here...) and show that you can think like an equity investor then I think the lateral move is very realistic. Ultimately you're going to be doing a LOT of the same analyses and you'll be familiar with how sponsors run deal processes, so over time you'll come up the learning curve on running point on diligence, equity documentation, etc... but at the associate level I'd be surprised if they expect you to oversee all those workstreams vs. own 1-2 of them at first then gradually take on more until you're senior associate or VP and then sort of drive execution. Goes without saying that if your mezz fund is doing mostly direct (versus sponsor backed) deals then your experience may not be as transferable, but it still might be... 

IMO it would be a LOT harder to move from a VP / principal level role at a LMM mezz shop to a comparable role at a buyout fund... not because you "can't do the analysis" or whatever, but rather because it's a different skillset / you spend your time doing largely different things.

 

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