Private Equity --->>> Business School?

For those of you who did investment banking as an analyst (2 to 3 years) and then PE for 2 years at a top fund (think KKR, TPG, Carlyle, LGP, H&F, CVC, Blackstone, etc.), was an MBA worth it? I know it is becoming more common these days to stay through at some of these places but in general, you leave after 2 years. To elaborate, if you went to Stanford or HBS after one of these jobs would you have done it again or would you have just recruited for a senior associate role in PE directly?

I know this is a very targeted question but would be interested in any opinions on this.

Thanks everyone!

 

I work at what you'd call a megafirm. As with all megas these days, we employ more than just one fund, one strategy, and one investment vehicle. In a significant, and I believe permanent, departure from the storied LBO firms of the past, the modern-day megafund has become a holding company for all manner of alternative investment vehicles, which is a sign of the increasing maturity of PE as an asset class as well as the demand (huge pools of capital) for established alternative investment firms. We have a large-cap buyout fund in the US, another in Europe, another in Asia, a large traditional long/short hedge fund, a middle market fund, a credit fund, and others. Recruiting is done by each fund independently but the process and resources of the firm are shared across funds (we do B school recruiting at the same time, use the same personnel to manage B school relationships, etc.).

It is quite rare to have a VP-level post-MBA BB pro come in to my firm in an investing role. The BB people we hire tend to be MD+ and usually for highly specific roles (fund-raising partner, capital markets/financing team, investment partners in specific regions like Asia or parts of Europe where the available talent pool is not as deep, and other special cases).

This will sound obvious, but I cannot overstate the importance of having actual investment deal experience to get consideration as a VP at a top PE firm. The biggest change in responsibility from associate to VP is the amount of contribution to the actual investment thesis and decision-making for deals. Associates can purely focus on the technical aspects of PE (modeling, structuring deals, financings, etc.) and shine, but at least in my firm, a VP is expected to be a solid, independently capable contributor to the investment team.

The traditional track for one of our buyout funds (either large-cap/mega or middle market) is: 2+ years analyst/associate at BB or consultant/case leader at McKinsey or Bain --> 2-3 years as associate/sr. associate at PE firm --> B school or, more rarely, a fourth or even fifth year as (sr.) associate --> VP --> Principal/MD/other junior partner title --> Partner --> Senior Partner/Managing Partner, etc. --> God.

It is possible to break this track but more likely at either extreme, i.e. either early or late in the process. For example, I broke into it early in the process, having had a combination of consulting and corporate world experience (no banking) before getting hired. Another example is one of our new partners in the Asian large-cap buyout fund. This person had a BB background, then spent the last third of their career to date in the corporate world as a big-company CFO, and recently was hired as partner.

If you are post-MBA and at a BB and really want to get into PE now, I would recommend you seriously consider getting hired into a mega through one of their non-large-cap funds. Once inside, at least in my firm, it is much easier to prove yourself and make a case for a lateral move to a pure investor role at whichever fund you wish to work in.

Caveat: the experience may be quite different at a smaller PE firm, so take what I say with a grain of salt unless you are specifically curious about the largest firms.

 

I am one of the younger MD-level pros, younger by maybe 3 years from the average. As I've explained, my firm has various affiliated funds, and the titling/leveling is slightly different in some funds (e.g. hedge fund, early stage/venture fund, large-cap Asia, credit). I am in one of the buyout funds, where MD status is equivalent to principal/first-level (junior) partner.

When considering age vis a vis title, keep in mind that not all deal pros at the same level are compensated equally. The more tenured pros will get more carry and cash comp than the pros newer to each respective level.

For our large-cap buyout funds, Goldman Sachs is the runaway top feeder for my firm. I'd say at least half of the incoming associates worldwide each year come from Goldman. Morgan Stanley is second.

 

Short answer, no it's no longer the near guarantee it used to be. Adcoms now are looking to broaden their student pool beyond the parameters of the blue-chip industries it used to exclusively represent. Whereas the vastly overwhelming bulk of matriculating students at HSW and the MBA business schools">M7 schools used to be the elite finance or consulting crowd, now you're seeing a growing number of successful applicants from engineering, manufacturing, supply chain management, and general management make their way in, particularly at Harvard and Stanford.

I am permanently behind on PMs, it's not personal.
 
Best Response

A Posse is right - it is no longer a guarantee. However, the odds of acceptance at HSW are still very high if you work at a megafund. For example, my friends at Bain Cap told me that of this year's second-year associate class, 8 of 9 applicants got into HSW (or something close to that - a little unclear because some didn't apply, etc.).

Now, keep in mind that these guys don't get accepted just because they worked at a megafund. To even get a job at a megafund, you likely graduated near the top of your class from a target school, worked at a top-tier investment bank or consulting firm, and have strong extracurricular/leadership experience. If you're that smart, you also likely have a high GMAT score. Those are the types of people that get into HSW whether they work at a megafund or not.

That said, it is obvious that working at a megafund increases your chances of admissions at HSW. The directors of admission at the top schools literally come visit the offices of the top PE funds to meet the 2nd year associates. The HR reps at the megafunds begin pitching their firms' associates to the admission committess months in advance, and are on the phone on a regular basis with the directors of admission during the application season. Many of the partners at megafunds are alumni of and big donors to the top programs; they will make calls or write letters as necessary to get guys in. The acceptance rates across most megafunds are too high for anyone to argue that these actions have no/little impact.

So, no, admission is not guaranteed. But it's pretty close.

 

I think the only thing that doing megafund PE before MBA guarantees is an easier recruitment process to PE after your MBA. Not saying it guarantees a position, but its a lot easier when you've had previous experience.

XX
 

The problem with these general questions is that the PE/HF world is extremely diverse and very different from IB.

Most PE shops do not provide formal training as you are expected to have acquired an IB analyst skill set. Job security is arguably better than in IB as the buyside generally runs much leaner deal teams as the job requirements are not premised on face-time as in IB. The hours vary dramatically with some large funds running sweat shops with IB hours while other groups run a more reasonable 55-70 hour work week. (I work about 55 hours on average and am able to go to the gym everyday, see friends, etc.)

Obviously, the prestige of the buyside outweighs the sell-side. It is always better to have real transactional experience as the buyer of companies rather than being the advisor to the buyer/seller of companies but I would argue that there is a benefit to experiencing both sides.

The only reason a graduating senior would not pick PE over banking or consulting would be the comparison between apples and oranges (GS IBD vs. no-name PE shop) and the lack of a formal skill set/sharper learning curve that PE often entails. Other than that, the buyside generally offers more freedom, creativity, exposure to senior members and executive management of prospective targets, experience and network opportunities.

Just focus on landing a job at this point...Good luck

 

There's are many reasons most private equity shops don't take analysts straight out of undergrad, and they're also the same reasons you need to consider when choosing PE over IBD (all market related considerations aside).

1) Most PE shops don't have the infrastructure to properly interview candidates on campus, and the cost of building an internal HR does not justify it unless you're consistently recruiting large classes (15+). And because of your low cost and potential added value, headhunters are not cost effective in this process, either 2) Most PE shops don't have the infrastructure to properly train new hires, and again there is no cost effectiveness in hiring firms like Training the Street 3) Most firms would rather spend 75 grand more a year to hire someone with two years experience that needs little to no training on day 1, and in this case, yes, headhunters are cost effective for hiring purposes 4) Established banks have the infrastructure to hire and train new hires out of undergrad. In addition, the high-demand environment coupled with the a heirarchy and staffing structure condusive to multiple simultaneous projects directly translates into more hours and a worse lifestyle. But at the same time, you're also getting twice the experience (maybe more, but at least twice by virtue of working twice the hours) with (hopefully) multiple products. As a result, your two or three years in banking makes you mature fairly quickly, and if anything else, helps weeds out those who didn't have an interest in working in finance as a career

As you can tell I'm a fairly big proponent of banking as a foundation before moving to private equity (and I think most private equity firms feel the same way). However, that's not to say you should always pick banking over PE. There are exceptions, big and small (and junkbondswap can probably speak to his experiences there). Bigger, more established PE firms have the infrastructure to provide you the training and the environment that's similar to banking in terms of experience (and unfortunately, lifestyle).

So to answer your question, yes, there are many reasons you wouldn't pick PE over banking/consulting (I can only speak to banking, though). Make sure you do your research if you have two offers on the table.

 

thanks for the answers. i do have 2 offers on the table. The PE shop has a great name and its training program looks really solid. what i really want to know was whether my profile will be less attractive if i don't have 2 years of banking or consulting on my resume. a lot of people i have spoken to have told me this was a no-brainer and i'm almost certain that i'll be taking the PE job, but i just wanted a few more opinions.

 

Honestly, PE will always be a source of uncorrelated returns, so to speak, with the rest of the market. The issue becomes how long will people be willing to wait to recover to a stage where funding PE via debt becomes viable again, and what, if any, legislation will be charged against the street if Barney Frank has his way. For the moment, it will not be a hot sector, but it will always be there. Not everyone and their mother will have a fund, especially given how hard it is to find funding for some of the more well known funds at the moment, but it will always be there.

 

their is no golden ticket to b school. I sat in on a finance course at UT and guy to my left was ex banker... women behind me a teacher, women in front of me worked in credit in brazil and guy to my right in IT...very mixed bunched... but everyone is focused so they caught up quick to their finance pre mba peers.

keep in mind that everyone in b school does not want to be in PE or banking

 

I really just don't get b-school admissions. I go to an undergrad program with a T5 b-school on campus, so I've done enough networking through there to know what kind of backgrounds they come from. While there are plenty of i-bankers and consultants, there are also tons of corporate development, equity research (at firms like Morningstar), and tons of random jobs like engineering programs.

I'm in no position to evaluate this subject, but if MBA business schools">M7 business school is your goal then I cant imagine that a decent gpa from undergrad + high GMAT + IB + PE wouldnt get you admitted. the IB + PE combo already seems more prestigious and accomplished than a lot of the backgrounds of people I've met.

 

I agree with Frieds that PE will always have a presence, but financing will be tighter, leverage will be lower (lower ROE), and deal opportunities will be far fewer.

While I have no intention of going to b-school - I did business undergrad - I am frankly happy that any 'golden ticket' (if there ever was one) will be disappearing.

As a Wharton undergrad, I saw far too many boring, unoriginal MBAs who planned on playing it safe their entire lives (ie - 'owning', never creating). I think business schools should be a nexus for innovative, original ideas; the whole point of b-school is to network so that years down the line, when you come across an opportunity, you have the right connections. It is to everyone's benefit that b-schools attract (and produce) people of as many professions as possible.

Junior finance gigs are great to learn a skillset and prove you're a hard worker; and there will always be some of us who go on to become sr people. But this whole mess is making me rethink my options, and I'm glad biz school admissions personnel are thinking the same way.

 

Even if B-SChools will place far less PE associates, people with PE experience will still be sought after. They will have a skill set that translates well into other fields. Golden ticket? Maybe not. But I don't see many 700 GMATs with legit PE on the resume getting rejected.

 

Good conversation here, I like to hear multiple people's perspectives. I personally believe that PE will still be held in high regards, but it may lose some of the luster that it once had with the top business schools. Students always seem to be chasing whatever the current "hot market" is, and MBA programs seem to have always catered to them. As PE falls out of favor, I imagine that there will be some level of cutback of finance professionals and a proliferation of whatever is new. That said, it is hard to argue that PE professionals are not extremely qualified to be successful in top MBA programs.

~~~~~~~~~~~ CompBanker

CompBanker’s Career Guidance Services: https://www.rossettiadvisors.com/
 

They're looking for diversity of background, with the idea being to create the most thought-provoking class discussions, and to give people the best experience of their team projects. My small-group for projects consisted of a lawyer, an IT guy, a scientist, an entrepreneur (his strength was marketing), and an engineer.

The point is that when we did projects, we'd cross-pollinate from our disciplines. And you saw the result of that when all the teams would present in class, and you'd see a dozen different approaches to the same case or project.

B-school goes by fast, and the workload is so high, that your ability to take it all in is limited - - it's sort of like a drive-by blasting of concepts and ideas. So to help you grasp and absorb more of it, you need the stimulation of these different viewpoints, and from people with some depth in their own specialization. In particular, I learned a lot from the way the lawyer in our group approached problems, as my mindset couldn't have been any more different.

That all being said, finance tends to be overrepresented in Top 10 B-school admission pools. So the "sizzle" that you bring is more important than the particular discipline of finance you're in. A single small-group probably doesn't need both a PE guy and a VC guy and an LBO guy, even though their disciplines are different - - they won't give a vastly different contribution to a group discussion. The differences are too nuanced, compared say to a marketing guy or science guy, etc.

The other thing is that different schools are going for a different vibe - - and so your admissions story will "click" more with one school than another. Or more specifically, when they're trying to break ties among a batch of similarly qualified candidates, different qualities will rule in your favor in different schools.

So, the point is to apply as widely to as many good schools as you can stand to, given how many applications you can write and still do them well. I spanned by applications out across four schools - - I applied early in the season to the one with the earliest deadline, did two in the middle, and held off on the one with the most generous deadline until the end. Probably spanned about 4-5 months of writing.

A final thought: the discipline that was most sorely underrepresented in our business school class was Sales. (Not as in "sales and trading" in Ibanking - - I mean real, career sales, like sales of industrial products - - guys who make money from commission, and meet a quota.) A lot of smart people look down on sales, and don't tend to get into it, but I have a hunch that if they have good GMATs, people with a sales background have a much higher success rate, because the pool is so small.

 

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Alex Chu www.mbaapply.com
 

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