I’ve just hit the three week mark at my new job in Private Equity, and I have some observations that I’d like to share now that I have a moment to catch my breath! The time has absolutely flown by, and needless to say I’ve been working my brains out. In a nutshell, I’m doing 1000x more work than I ever did in banking, but the work is 1000x more engaging.
So let me say to begin with that I had no idea what to expect going into PE other than what I had read online (WSO, M&I, etc.) and what my friends already in the industry had explained to me. All the explanations basically boiled down to something along the lines of, “you source and evaluate investment opportunities as well as work with portfolio companies.” Seemed easy enough. I knew about direct sourcing (ie: cold calling – I had done a fair amount of this in my previous job), and I figured it would be easy enough to learn about indirect sourcing (ie: working through business brokers to generate dealflow). Piece o’ cake. My head hit the pillow Sunday night before I started, and I felt ready to tackle anything.
Working in Private Equity vs. Investment Banking
Come Monday morning, boy was I in for a surprise – not so much a rude awakening as achieving a total and complete sense of clarity. The profound realization went something like this: in sell-side M&A, “you” (your firm) are essentially a salesman propping up your client to make them look as pretty as possible. It could be a stellar company that you want to make seem like a no-brainer investment, or it could be a complete turd that you are just trying to polish to resemble some semblance of a going concern (happens more often than not in the middle market). You are the bitch – at the mercy not only of the client but also of any interested parties. It’s not the place you wanna be – at least this was MY takeaway.
Benefits of Working on the Buyside vs the Sellside
Enter the buyside. As a member of the investment team, I found myself wielding a level of power that I was wholly unfamiliar with. In evaluating any given investment opportunity, I had complete control in deciding whether to escalate the opportunity to the partners. The CIMs I had worked so diligently on in banking are now a dime a dozen across my desk. No longer am I trying to tell the story of why a company is awesome but rather questioning the story presented to me and attempting to poke holes in it wherever possible. I mean this in both a conceptual as well as a functional sense.
Evaluating Target Companies in Private Equity
I have complete control and discretion regarding how to go about evaluating an opportunity. I don’t buy management’s projections? I build out a pro forma with my own growth drivers, and I challenge the assumptions on my calls with the banker. I need a better understanding of the eCommerce market? I draft a list of eCommerce bankers/experts and call them up to learn about it. The banker hasn’t provided a breakdown of revenue by client over time? I send a data request.
Me – the 23 year old dealing with senior bankers. Partners don’t get involved until it passes the sniff test and gets the nod at the Monday morning meeting. It was daunting at first, but I’m gradually coming to embrace the challenge. The point is this – I thought I had a modicum of responsibility on the sell side. I had squat. I’m having to rewire my brain, and frankly I’m loving it. I’m working more than I was in banking, but that’s more a function of being provided a laptop/cell phone and being available to do work any time.
Looking to the coming months, I’m slowly getting accustomed to the flow of the firm, building out my own network of brokers, and reading CIM after CIM after CIM. To any monkeys wanting to know more, feel free to PM me. All in all, I couldn’t be happier to have made the move.
You can learn more about the differences between banking and private equity in the below video.
Read More About PE on WSO
- How Do I Get Into Private Equity
- PE Associate Compensation
- Private Equity Vs Hedge Funds: 4 Key Differences
Interviewing for Private Equity Jobs?
Want to land at an elite private equity fund try our comprehensive PE Interview Prep Course. Our course includes 2,447 questions across 203 private equity funds that have been crowdsourced from over 500,000 members. The WSO Private Equity Interview Prep Guide has everything you’ll ever need to land the most coveted jobs on Wall Street.
I totally agree. I did a 5-month secondment at a PE fund related to my IBD. It puts you in an entirely different mindset. You actually start using your brain.. looking at everything with a critical eye.
While bankers might spend an all nighter trying to polish off a bullshit company for some sell-side teaser or IM, you can just toss it off after an afternoon of looking through it and come up with the conclusion it is not an interesting investment, and that's it. We had a 3 hour call with a mid market investment bank once during which 3 senior bankers took turns pitching us on three different companies they were working on. the end result was that we were not interested in any of them.
PE (if you are mid-market) is also much more entreprenuerial on the origination side as you are not just executing the deals of other people, but are really going out there and trying to find good investments and put them forward to the seniors yourself.
After returning to IBD from the secondment at the PE fund, i am so jaded with what i am doing with my days, knowing what it was like at PE. About a month ago, i tendered my resignation and am currently serving my notice period. in September, i move to Hong Kong and will try to find a mid-mkt PE position there or otherwise exit finance all together.
You resigned without securing an offer? Very ballsy move in this market. I can tell you that current PE opportunities in HK (at the analyst/associate level) can be tallied in one hand. The action is in Mainland China, hope you can 1). speak Mandarin and 2) willing to settle there.
I agree with the bullshit we do in sellside, wish everyone can see through it and move on to better things.
Sounds good, Similar to the investment management, it seems as if these guys disect every investment opportunity down to the smallest details before jumping the gun.
Nice post, keep us posted on the buyside experience.
About this comment above, do you mean you're working more hours now? Also, did you not have a laptop and phone before with your sell-side banking firm??
I find the prospect of jumping to the buy-side a little scary because I generally like my work now in banking and I really don't know how much I'd like the buy-side work. Some previous buy-side posters have painted a ugly picture of the buy-side being 24/7 due diligence work which sounds awful, but others like yourself have made it seem interesting, albeit you're 3 weeks into the job.
Anyway good luck and keep us posted.
One of the issues I've harped on a bit on here about PE is that due diligence can truly be soul crushing.
With that said, one of my bigger issues, and this is probably just a personal thing here, but is that I feel like it's way too easy to just sit back and pick apart a business. It's all too simple to be hyper-critical of companies that come your way via teasers and CIMs. Especially in the middle market. Honestly, I don't like that mentality.
While I understand it's important to be skeptical and dig into the details as an investor, it's just so easy to be critical and overlook the sweat-equity that went in to building a company up to the point where it's salable to PE.
This mainly applies to the middle market and founder-operated businesses, obviously, but it's an issue I have generally.
The flip-side is that you definitely do learn a ton about how different companies operate at a pretty deep level. In fact, I've found that a lot of what the due diligence process is about isn't so much trying to find reasons to kill the deal, but it's about understanding the business inside and out. After all, your firm will own it as soon as the funds hit the wire, so you'd better know it inside and out to best be prepared to work with management going forward.
TL:DR - It's too easy to be overly critical and trash companies, but you learn a lot from all the digging in you do.
Thanks for the clarification... if you don't mind me asking, did you work in banking before PE and at what level and firm size and also what type of PE fund do you work for? Are the hours any better in your PE experience?
--I worked at a top middle market bank for three years as an Analyst doing M&A before PE
--Lower middle market PE (~$300M in AUM)
--Hours are way better than banking for the most part and all weekend work is done at home on my laptop. Hours get pretty nuts during the heart of deals, though. I've done my fair share of late nights and grueling weeks. Even if you're working at home on the weekend, it can still be shitty to spend 10 hours on a Saturday working on a model or whatever. Still, though, better hours than IBD.
I understand what you mean, but in mid market PE, you just see so many opportunities, you can't spend a significant amount of time to look into each one. Also, when you have to think ahead to when you have to justify the investment to the (in my case, very conservative) IC, you have to be overly critical to not waste everyones time. If there are issues immediately apparent that may take a while to feel comfortable with, it seems better just closing the file and moving onto one of the targets with "cleaner" stories, as even the companies with easier stories to accept may still not make in through the IC due to some problem buried deeper.
Yeah, I mean, I agree 100% and was definitely trying to get that point across. My bigger issue is that there can be an attitude of "what a piece of shit company" and just disparagement of companies simply because your firm wouldn't invest in them.
And like, a typical issue at the lower end of the market is customer concentration. And it's like, well, no shit they have concentration. The owner / operator / management team isn't focused on building a company to look good in a CIM, they're focused on making money and being profitable. Having a diverse book of business is part of the equation, but no company in their right mind is going to eschew growth and profitability for purposes of keeping concentration down.
Again, my point is that I think it's way too easy to be critical, even if it's necessary, and that one needs to have the right attitude about it.
Awesome post, I would SB if I could. You hit on my feelings exactly.
On the point about DD- I think this is something that's under appreciated by people trying to break in. If you're really into markets, like I am, PE is probably not your game. You're spending time in the weeds of the accounting, understanding how that company recognizes revenue and books inventory to figure out what their real seasonal working capital needs are. Then you're going to visit the warehouse to make sure whatever shit they say they have is really there. After 6 months to a year of that, you're going to get on the phone with some lawyers and argue about whether your stock purchase agreement should say "reasonable best efforts" or "commercially reasonable best efforts". And once you own the company, you're going to sit in on board meetings with the CEO talking about budgets and 409a option valuations and approving bonuses for the VPs of finance and marketing. If you think "I really like the stock market and I could do this for a living", think hard about whether PE is the best way to approach it.
On the point about being too cynical, all I can say is amen. There is a guy in my office who just trashes on every company that comes in the door. It's his thing. No one would ever do a deal if it were up to him, and then down the road whenever anything goes wrong it's "I told you so!". Investing is about about finding the right balance between risk and pricing (i.e. return). If you consistently buy companies at the right price, over time you're going to perform well.
But that being said it is still infinitely better than investment banking. As the OP said, you're using your brain and not just wearing out the ALT, E, S, T keys on your keyboard.
Your piece about the absurd word-smithing of legal docs had me dying with laughter. Shit is 1,000% on point. If you have a creative bone in your body, you'll absolutely want to be dead during the legal stuff.
And on board meetings, it's fun to sit in on them and hear the management talk strategy and what not, but, in my view, the interest level is really company-dependent. If you're at a board meeting for a concrete slab manufacturer, you'll probably want to tear your eyes out. One positive, though, is that you learn to deal with a wide variety of personalities and will inevitably end up building a decent relationship with some of your companies' teams. I know I have.
For me, to be truly successful in PE you need to really love business. Not specific sectors of business, but business in general. It's easy to say "yeah, I love business, it's interesting, blah blah blah" but to really live and breathe it and have to dive into all sorts of different companies can be tough. Again, it's a lot easier to get interested in a high-tech manufacturer or a consumer products business than it is to get into an assisted-living home owner / operator, for instance. But, if you really like doing the due diligence and the valuation work, figuring out a capital structure, and then dealing with negotiations, it could definitely be a career for you. I just think that a lot of people don't quite know what they're getting themselves into.
Lastly, you're again on point in terms of finding a balance between risk and price. It can be a deal that's rough around the edges, but if you only pay 4.0x trailing EBITDA and get it outside of an auction process, chances are you're going to get a nice return. Also, some of the "rougher around the edges" companies can be more interesting to work with since there is more to do in terms of hiring and developing growth plans. Again, the Associate will observe and provide ancillary analysis more than anything, but you still learn a ton by osmosis.
This. I eventually want to end up in an operating role, and I'm already starting to see how PE experience can be valuable toward facilitating that goal.
Regardless, I'll check-in in a few months and see if I've become cynical. But so far, everything is gravy.
Definitely. I feel like this is the stuff your business classes are (unsuccessfully) trying to prep you for with all their group project role playing shit. You realize pretty quickly that dealing with people in these kind of situations is really an art. But if you are really serious about continuing in PE or management, these are fantastic learning opportunities. No other job is going to get a 25 year old in the board room playing a role in management decisions (especially in mid market, where you may have some less sophisticated management teams. I kind of doubt this happens very much at KKR or Apollo).
Right on again. I did banking because I was told that's what you do after college, and I did PE because I was told that's what you do after banking. All I really knew was that I liked investing (but of course I thought I had it all figured out).
I think this is the real challenge of PE and the reason the good ones are so highly compensated. You've got to find great managers who also "get" investing, which is rarer than you would expect.
...
Another difference I will mention is that models are just a tool in PE, rather than the focus of your job. Even though you might be spending the lion's share of your time on them, it's not like you're just going to model the company and then slap your head and realize this is a great investment. You use your model tactically to support your analysis of the company and industry- to use my working capital example, what is their seasonal cash need going to be if the company doubles in size? How does that affect how much equity we put in and how big their revolver should be? How should we adjust our pricing to compensate? In banking I would get MDs telling me to throw together a merger model and see what it looks like, and then they'd decide if they wanted to show it to the client. That is not going to fly here. Then again I worked for a shitty bank that went out of business, so maybe my experience there was not representative.
Agreed. I think PE is a great opportunity post-banking. You learn a lot of valuable stuff and it really teaches you to "step-up" in ways you never would've fathomed as an analyst.
That said, I don't think PE is the pot of gold at the end of the rainbow for those looking to "use their brains," learn about businesses, boss around sell-side guys, or become truly thoughtful investors. Here's why:
(1) Just because you are on the buy-side doesn't mean your days of pitching opportunities to others are over. Once you (by you I mean your deal team) identify a viable investment candidate, you have to pitch it to the investment committee not once but multiple times throughout the deal process. This usually sucks because (i) there's always some senior guy who doesn't like the deal which means a lot of follow-up analyses, (ii) more often than not you end up in a CYA situation because the actual deal at the closing is usually worse than whatever you presented when you got the initial green light, and (iii) you have to deal with a few people on the committee with a tendency to ask "clever" (i.e. irrelevant but smart-sounding) questions to make themselves look good.
Then you have to go pitch the story to lenders. Then you have to pitch to the story to your LPs when you provide quarterly / annual updates. Then you have to sell the company, which means you have to put together those same CIMs you used to detest so much (only now you get to provide "comments" instead of actually writing the CIM).
(2) You still don't REALLY know how businesses work. Even though you're more "in the weeds" than you were in banking, you're still looking at a lot of distilled information. You have no idea how their supply chain routing algorithm works or how they put together that bid to refurbish that boiler system. You just know it made costs go down or revenue go up.
(3) The whole "investing" process is getting a lot more standardized and mechanical. Bank sends you a distilled down CIM promising recurring revenue and a blue chip customer base. You put in an indication. Bank says "you're in the mix but we'll need you to sharpen your pencil." Go to management presentation and "dig into" the data room. Submit final indication. Maybe you're the final bidder. Probably means it's now a bad investment. Negotiate purchase doc, which seems like it should be standardized, but somehow isn't. 5 years later, sell to same group of guys who tried to buy company last time around or to idiot strategic (ideal outcome). Meanwhile search for that magical "proprietary deal" which is a company that is well-run, established, and has scale but has never heard of an investment bank. Not quite the investing panacea.
(4) Success in the upper echelon's of PE is a lot more about polish, political maneuvering, and salesmanship, and less about investing acumen.
As an aside, I've found the most interesting part of the investing cycle is at exit. You'll definitely have to stretch your mind if you've got a complex waterfall, much more so than when you're making up nonsense forecasts for your underwriting case.
Great explanation of day to day. Thanks for that.
Comp is similar to what I got in banking. Salary is a little higher, bonus is comparable. I took a slight pay cut, truth be told, but the trade off for better hours and diversifying my experience was worth it.
What path do people typically take after the IB -> PE route (assuming MBA is already done)? People here never focus on the topic of retirement but I'm curious until what age do you work and call it quits?
I mean, if you're post-MBA in PE, you're likely trying to make Partner. It's insanely tough to get a post-MBA PE slot unless you've got pre-MBA experience. If you make Partner, you can likely retire whenever assuming you don't have a ton of cash flow needs.
As for retirement? I mean, that's so subjective. Live within your means and build up a nice cash balance / portfolio of assets / whatever and it's really on you. I work for people that could definitely retire but still do the work because they like it.
Echoing what TheKing said and also responding to adapt or die, yes it feels like I'm "working" more, but the work is more rewarding and it all feels like it has a "purpose." I didn't have a cell/laptop at my sell-side gig. The nature of the extra work involves getting something reading before the meeting on Monday, etc.
what top middle market banks makes their analysts cold-call?
Haha I never said it was a "top" MM bank. Cold calling was a component of the role though in terms generating deal flow for the firm. For me it was roughly a 60/40 split between execution/sourcing at my previous firm. OMS, seeing you work in VC and to use an analogy, we basically applied the sourcing model to banking and flipped it on its head.
My role now is far less of that (in fact none so far), and instead far more deal exposure akin to what I was describing above.
slightly OT, but in your last MM, what was the comp jump from 2-3yr associate to VP? how is the jump for the equivalent positions at a PE? my impression was that the jumps in PE are less dramatic.
(bonus/salary split, etc.)
Slightly off topic, but I understand the role of having companies pitch to you. I'm at a power/energy firm that has massive cap-ex and is building out a ton of infrastructure. We have firms pitch to us all the time about financing and even construction, so we do a ton of due dilligence (financial analysis, credit analysis, engineering support / reviews).
It took me a good year to see real fit, versus marketing BS.
While it definitely feels empowering being able to turn down others' investment proposals, at the end of the day an investment firm such as PE makes money not by turning down deals but rather saying yes and jumping onboard of good investment opportunities.
Even at the junior level, if you come across a particular deal opportunity that you feel strongly about and are convinced that it could be a runaway winner, then it may be worthwhile to make a compelling case (based on solid research on your own, obviously) on behalf of that company and persuade the investment committee to jump onboard. By taking ownership of your deals you demonstrate initiatives and drives. This will help the partners to notice you as not just another analyst drone but rather someone that can be groomed for further career growth.
Depending on the deal's time horizon, it may be a few years before it becomes obvious whether you made a good pick. Assume that you stick around (and since you love what you do here so why not) and the deals you sponsor end up making the firm some good monies overall, then you will have proven yourself as a rainmaker and will be well positioned to join the ranks of senior people at your firm.
p.s Congratulations to your friend for securing funding for her startup. It is good to know that there are bright young entrepreneurs like her out there running an actual technology company as opposed to yet another "social media"/social-gaming type widget.
A very well-written post. My 2-month stint on the buy-side has, so far, been very similar.
This side is so much more fulfilling than banking, but that is obvious. However, I have said and will always say that if I had to do it all over again, I WOULD. I think if you ask anyone who has achieved success post-banking (and this does not just mean PE/HF), they would say the same. I am by no means saying all bankers will be successful, but it is a stamp of approval on your resume in your early 20's that is unattainable in few careers.
I have posted on life post banking, from working at a mega HF (which wasn't for me) to my current career in VC, which is 100% for me.
Point being, agree completely at how different things really are on the other side.
What didnt you like about mega HF?
How long before you realise that your returns are basically levered beta and are dominated by randomness/the business cycle and become disillusioned?
I have to admit, it took me a few years in my sector (say 3.5-4).
i am waiting for this post as well.
Sit voluptatem voluptatibus et. Explicabo eius est voluptas nulla iste ratione quia. Voluptates quaerat in et rerum rem ut. Aliquam voluptatem in aut totam. Id fugit accusantium enim praesentium ipsam doloribus quo.
Odio qui tempore illo incidunt. Impedit quaerat et atque amet. Soluta facilis officia dolorem non est autem.
Sapiente ut et enim nemo ullam quae. Dolores dolorum facere quia tenetur doloribus voluptatum laudantium.
Nihil iste sunt nam est nemo necessitatibus voluptatibus. Similique perspiciatis velit molestias et earum voluptate. Ex rerum est perferendis consequatur sit consequatur dolores. Dolore non eos id consectetur provident. Dignissimos deserunt numquam harum aliquid. Et quisquam non at.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Voluptatem tempora esse voluptates excepturi dolor. Et odio provident molestias.