PE FoF
Guys,
I'm working in a small PE boutique that does mainly growth capital. When I say small, that means 4 people (including me) and we usually have to find co-investors above $1m...
I have a couple interviews coming, especially one with a $1b+ PE FoF. Honestly, at first, I wasn't thrilled but I found some pretty good descriptions on this forum and I'm starting to change my mind. However, I still have a couple questions:
- If I go to a FoF, is going back to a "regular" PE fund possible later on? Not necessarily a megafund, but simply returning to the GP side?
- When a FoF picks a manager, do they invest as LP? Give money directly to the GP (does that even make sense?)?
- To what extend do FoF associates get exposed to the portfolio companies? Modeling? Attending board meetings?
Truth is that, to me, it sounds like a back office job and I'm not sure I should give up a FO position, no matter how big or small my fund is, for that.... Any advice?
I work on the HF FoF - so
I work on the HF FoF - so take my advice with a grain of salt, as I can only advice you from my HF FoF and interactions with PE FoF buddies.
1. switching back to 'regular' PE from PE FoF - yes it is possible, however this is heavily dependent on your original PE knowledge. remember at FoF level you are analyzing managers and the deals those managers have (portfolio of companies) but you are not directly analyzing live deals as in the case of 'regular' PE. So yes you can switch back, probably very easily at that because trust me, in about 3 months you will know who are the really good PE managers in various sectors. FoF's frown on switching to a company you found out thru them but who cares?
2. Investment differs and is always up for discussion but often the FoF invests as a sub investor/ institutional investor in the PE fund. Remember the down side of FoF's is double fees, so investing as an institutional client reduces the fees.
3. Direct exposure to the portfolio companies - not really that will be micro management... think along this line - you are a HNWC, you give your money to a PE manager and you call him everyday to see how EACH of the companies he is invested in is doing. not feasible (micro management)... you won't get as much direct exposure but you will get a second level of exposure. as for call - you will sit thru a million calls and hear what manager A is investing in and why he is greater than manager B. Modelling - yes, but you are modelling the managers you are invested in... there's more than enough analysis to be done, each manager you want to invest in will at some point after you sign a DD, will release as much info about them as you require including how the model, analyse and pick each company.
4 Is it back office? very far from it - compensation is very on par with your mates if not more, very easy to shine, you just have to be great at picking managers and not companies which is great because if you were in a regular PE and found a good company it might be harder to get your bosses to invest in than if you found a good manager etc. the next best thing is - you will know almost every PE manager and have them on speed dial and know them on a first name basis... the down side, you will not be analyzing companies BUT MANAGERS. so before you switch be very sure you are comfortable with the basic PE analysis skills so you can always switch back, but you stand to learn a lot tho.
hope this helped... luckly I'm having a slow day (ignore any spelling errors)
I'm currently at an analyst
I'm currently at an analyst at a PE Fof that is more venture focused:
1) It is possible, but it doesn't seem to be the norm (just from people I've spoken with and general research). The fact that you already have some exposure at a direct PE shop I think should help your case down the road. If your Fof does co-invests, you will develop some transferable skills as well, although it is important to recognize that the level of diligence and modelling you do as a co-investing LP is nowhere near as in depth as what the GP is doing.
2) Yes, as the name suggests.... fund of funds invest in other PE funds, not the underlying portfolio companies. In that respect, they are certainly limited partners. But fund of funds in turn have their own clients (typically public institutions or pension plans that don't have adequate infrastructure to build out their own internal team to diligence funds) who invest capital that allows the Fof to go out and assemble their portfolio of funds. To these investors, they are the GP, selecting and managing their portfolio of primary commitments to PE funds. The Fof adds a layer of fees, which is usually 1/10, although I think fee structures in the FoF world are steadily becoming more LP-friendly and it is not uncommon for the duration in which the LP is being charged full-freight fees to only last a couple of years and/or include preferred return hurdles.
3) Really depends on if they have a robust co-invest platform. As an associate, working on co-investments will get you some modelling and diligence experience, although as I mentioned earlier, it won't be as intense as the work your GP is doing. If your fund invests purely in primaries, then I think it is unlikely that you will get much exposure to any of the underlying portfolio companies, other than as part of the normal due diligence process that you go through in making a primary investment, and you definitely would not see a board room.
Overall, I have personally loved my job thus far, as my fund does the gamut of primaries, secondaries, and co-invests. Most Fofs are moving in this direction in terms of the diversification of activity, because it really is one of the few ways they can justify layering on the fees. If I were you, I would get a better handle on the type of investing your fund does, size / type of commitments, do they usually sit on fund advisory committees, etc. to better gauge the type of exposure you may get. As monkeyd talked about above, most of your time will be spent selecting and meeting fund managers.
I'm currently at an analyst
I'm currently at an analyst at a PE Fof that is more venture focused:
1) It is possible, but it doesn't seem to be the norm (just from people I've spoken with and general research). The fact that you already have some exposure at a direct PE shop I think should help your case down the road. If your Fof does co-invests, you will develop some transferable skills as well, although it is important to recognize that the level of diligence and modelling you do as a co-investing LP is nowhere near as in depth as what the GP is doing.
2) Yes, as the name suggests.... fund of funds invest in other PE funds, not the underlying portfolio companies. In that respect, they are certainly limited partners. But fund of funds in turn have their own clients (typically public institutions or pension plans that don't have adequate infrastructure to build out their own internal team to diligence funds) who invest capital that allows the Fof to go out and assemble their portfolio of funds. To these investors, they are the GP, selecting and managing their portfolio of primary commitments to PE funds. The Fof adds a layer of fees, which is usually 1/10, although I think fee structures in the FoF world are steadily becoming more LP-friendly and it is not uncommon for the duration in which the LP is being charged full-freight fees to only last a couple of years and/or include preferred return hurdles.
3) Really depends on if they have a robust co-invest platform. As an associate, working on co-investments will get you some modelling and diligence experience, although as I mentioned earlier, it won't be as intense as the work your GP is doing. If your fund invests purely in primaries, then I think it is unlikely that you will get much exposure to any of the underlying portfolio companies, other than as part of the normal due diligence process that you go through in making a primary investment, and you definitely would not see a board room.
Overall, I have personally loved my job thus far, as my fund does the gamut of primaries, secondaries, and co-invests. Most Fofs are moving in this direction in terms of the diversification of activity, because it really is one of the few ways they can justify layering on the fees. If I were you, I would get a better handle on the type of investing your fund does, size / type of commitments, do they usually sit on fund advisory committees, etc. to better gauge the type of exposure you may get. As monkeyd talked about above, most of your time will be spent selecting and meeting fund managers.
monkeyDD: I work on the HF
I work on the HF FoF - so take my advice with a grain of salt, as I can only advice you from my HF FoF and interactions with PE FoF buddies.
1. switching back to 'regular' PE from PE FoF - yes it is possible, however this is heavily dependent on your original PE knowledge. remember at FoF level you are analyzing managers and the deals those managers have (portfolio of companies) but you are not directly analyzing live deals as in the case of 'regular' PE. So yes you can switch back, probably very easily at that because trust me, in about 3 months you will know who are the really good PE managers in various sectors. FoF's frown on switching to a company you found out thru them but who cares?
2. Investment differs and is always up for discussion but often the FoF invests as a sub investor/ institutional investor in the PE fund. Remember the down side of FoF's is double fees, so investing as an institutional client reduces the fees.
3. Direct exposure to the portfolio companies - not really that will be micro management... think along this line - you are a HNWC, you give your money to a PE manager and you call him everyday to see how EACH of the companies he is invested in is doing. not feasible (micro management)... you won't get as much direct exposure but you will get a second level of exposure. as for call - you will sit thru a million calls and hear what manager A is investing in and why he is greater than manager B. Modelling - yes, but you are modelling the managers you are invested in... there's more than enough analysis to be done, each manager you want to invest in will at some point after you sign a DD, will release as much info about them as you require including how the model, analyse and pick each company.
4 Is it back office? very far from it - compensation is very on par with your mates if not more, very easy to shine, you just have to be great at picking managers and not companies which is great because if you were in a regular PE and found a good company it might be harder to get your bosses to invest in than if you found a good manager etc. the next best thing is - you will know almost every PE manager and have them on speed dial and know them on a first name basis... the down side, you will not be analyzing companies BUT MANAGERS. so before you switch be very sure you are comfortable with the basic PE analysis skills so you can always switch back, but you stand to learn a lot tho.
hope this helped... luckly I'm having a slow day (ignore any spelling errors)
Do you mind sharing what the compensation is like at your level or associate level?
monkeyDD: I work on the HF
I work on the HF FoF...
(...)
Guys, I couldn't have asked for more insightful answers. Thanks a lot! Would you mind shedding a bit more light on compensation though? One of the reasons I'm trying to move is my below-market comp...
Again i work for a HF FoF -
Again i work for a HF FoF - so im talking HF pay.... At mine 2nd/3rd year analyst 80k base 30-80k bonus depending on how the fund peforms... Associate 120k bonus 60-120k exact figures cutting the BS is about $130k analyst and associate anything over $170k is good enough... Again analyst and associates run everything in my view, PMs just make the final decision
Thanks!
Thanks!
- If I go to a FoF, is going
- If I go to a FoF, is going back to a "regular" PE fund possible later on? Not necessarily a megafund, but simply returning to the GP side?
It'll be very difficult unless you are okay starting over as a 1st year associate or going to b-school. Principle investing and FoF investing are completely different and to come in as an experienced associate or VP would be near impossible.
- When a FoF picks a manager, do they invest as LP? Give money directly to the GP (does that even make sense?)?
FoF are the LPs. It's committed capital so they do not actually provide the funds until there is a capital call on a deal by deal basis.
- To what extend do FoF associates get exposed to the portfolio companies? Modeling? Attending board meetings?
Not exposed at all. FoF will speak to the PE, but not to the portfolio companies directly. Definitely not attending board meetings. I couldn't speak to what the modeling is like in a FoF.. i always assumed it would be more of a risk management role, but i have no idea.