Ask CompBanker

I'm a 2nd-yr Analyst at a BB and have my 1st private equity interview this coming Tuesday with a MM PE. Just wanted to know what do you think are the most important characteristics that I should portray in this interview. I already know about the PE industry and know the basic technicals; having done banking for a while I'm not that worried about being asked specific valuation questions. I'm more concerned about the BIG PICTURE fit questions and qualities they are looking for.

I think overall, confidence is one of the most important things you can demonstrate in an interview, particularly in private equity. How you deliver your response is just as important as the actual response itself. If you are already comfortable with the technical questions then the most important thing you will need to focus on is being articulate and confident. This is the single most critical thing that will set you apart from your peers and what the senior guys tend to look for the most.

Question, I'm looking at corp dev jobs now... I want to put a case study together to show I know modeling inside and out (i'm an analyst). I've already identified a potential target who isn't a client of my bank...But I don't want to put this M&A case study together to come off as a "pitch." Do you think I can get in trouble if I clearly state this is purely to showcase my skills and has nothing to do with my current full-time position? My alternative would be to do a case study of a past transaction they completed in say, 09 and do it as of 08 or something, but I feel like it's kind of "cheating'' since all the information regarding that deal is already available..

Honestly, I'd be careful about putting together a case study on an industry that they know very well. If they start to grill you on it, you may come off looking foolish and uneducated on the subject. It can be really hard to impress someone in their area expertise so I'd stick to impressing them with your finance skillset rather than your industry knowledge. What I have seen someone do successfully is put together a case study for a totally unrelated business to prove to the employer that this particular person had talent. It was very well received and this person got the job despite being totally unqualified in every other aspect.

As for your MD, this is going to be tricky no matter how you look at it. Not much advice I can give you other than to try to lay low and have a good excuse ready in the event you do get caught.

From what it seems like, life at MM funds outside of NYC seems to be a bit less stressful, where the average non-live-deal work week ranges between 50-60 hours. Is this correct, or am I just dreaming of a fairytale land?

Lifestyle outside of NYC is usually much better, however there are exceptions. In the PE world, the lifestyle is largely determined by the senior folks. If they are hardcore, you will be expected to be. If they value lifestyle, you'll have a much better balance. You likely won't know until you've started interviewing and start to get a feel for the team. From my experience, many of the MM firms in NYC are very intense and most of the MM firms outside of major financial cities are incredibly laid back.

How do PE firms view analysts who stayed on for a third year rather than jumping to PE after year 2? Were I in these firms' shoes, I would assume that something was inherently wrong with the candidate who didn't land a job during his first process.

Honestly, I think you're making it a bigger concern than it is. At least a third of the applicants that we received at my last shop in the past 2 years were folks with 3 or more years of experience. We even had multiple people who were accepting associate promotions after being bankers for 3 full years (one of which we hired). Just be sure you have a compelling but honest answer as to why you stuck around a third year.

One thing to note is that by staying a third year, you were effectively setting your career back by a year. The folks who get hired with 3 years of banking experience get the same level of responsibility and the same pay as the folks with 2 years of banking experience. This isn't a problem at first, but if you continually stick around longer than usual, you'll find yourself falling behind your peers. For example: I manage a pre-MBA associate who graduated from undergrad the same year I did, simply because I took an expedited path while he spent three years banking.

I've tried to get into Institutional Equity Sales in Atlanta and have done all of the following: -networked on LinkedIn/other ways -followed up with HR -highlighted my prior Finance experience/FINRA licenses -resume done by professional -applied to every key Atlanta bank with S&T

What else should I do given the circumstances?

Given your situation (or anyone's really), there are really two fundamental ways that you can improve your chances. The first is through networking. Cold calls / emails, or anything else you can do to help build a network in your desired field is great. Even if they don't lead to immediate opportunities, building a lasting network can be crucial. It seems like you've already been doing this extensively, which is great. The second way you can improve your chances is by building your profile. This means things such as taking the CFA, bolstering your GPA (too late if you've graduated), keeping current on the news, learning your technicals inside and out, and other "resume building" activities.

The good news is that there is really no limit to the extent you can work on the two categories mentioned above, so your goal should be to dedicate as much time as possible to maximizing your chances through networking and self improvement. Note that it is also important that you achieve a balance between these two. If you spend a lot of time building your profile, you won't need to spend as much time networking. Similarly, if you've got a vast and dedicated network, you won't need as strong a profile. Balance is key.

That's pretty much the best advice I can give you. Unfortunately, there is no silver bullet to breaking into finance, and now is as tough as ever before. The trick is to keep at it, because you'll never break in if you give up.

For Institutional Sales, assuming that soon I can break into it, I've considered not going to business school for my MBA in the next few years. I know that you mentioned that an MBA can be valuable, but for Institutional Salesmen, I've seen that the vast majority of them don't have MBAs, so for me, my thinking is that it isn't as valuable and that I should just leave it alone in the future. What are your thoughts on the value of an MBA for an Institutional Salesman and also what are your thoughts on the Goizueta Business School at Emory for an MBA for Atlanta S&T?

Let me clarify that while I view the MBA as a valuable degree, it doesn't make sense for every career path. For someone that works in S&T, it is very uncommon to get an MBA as this is generally not viewed as a career enhancing degree. As such, I don't recommend you pursue it unless you have plans to leave institutional sales shortly after obtaining the MBA. As for Goizueta Business school, I don't know much about it because no one I've ever interacted with professional has obtained an MBA from there. That itself may be a telling statistic. However, people obtain MBAs for different reasons, and there are many reasons why an MBA from Goizueta could be a good career move for someone.

What are your thoughts on going to b-school if you land a BB analyst gig right out of undergrad. Is the MBA still worth it or would two years of higher level work experience be more valuable?

I think an MBA from a top ranked program is incredibly valuable for all the common reasons cited -- network, experience, career acceleration, prestige, etc. What I think is overlooked is the value of an MBA as a safety net. The reality is that your career almost never goes according to plan, often times for reasons outside of your control. I'll give you two examples:

1) You're working as an analyst at a BB investment bank. Things are good -- deals are getting done and your team likes you. Three years later you're offered a direct promote from analyst --> associate. Not wanting to forego two years of earnings nor pay for a costly MBA, you accept. A few years later, shit hits the fan. You don't get promoted to VP, or maybe you start to suffer from extreme burnout because you've been working non-stop for six years. Governmental regulation may restrict your pay, and all of a sudden the job isn't as attractive. Maybe you meet the girl of your dreams and want to start spending time with her; perhaps settle down and start a family. Whatever the reason, if you find yourself in a position where you want to start pursuing career alternatives, your options are far more limited without an MBA.

2) Say you work in a PE firm and have been absolutely crushing it. You're given an opportunity to "skip" the MBA and are promoted directly to a post-MBA role. The partners love you -- you get along great with them and do good work. Your future is looking bright. However, over the course of the next five years, the fund's investments aren't performing well. When the team goes to fundraise, they are unsuccessful (this is happening a lot these days). Even worse, maybe the partners' plane goes down and a number of key employees are lost. All of a sudden you find the fund is winding down and you're off looking for a new job. You don't have an MBA network to tap into to help find a job, and what's worse, you're searching for a Vice President / Principal job without an MBA. Hiring will be significantly more challenging. While the partners at your shop thought you were a rockstar, this isn't something that you can convey on a resume. As a result, you're going to face an uphill battle. Having an MBA in this circumstance wouldn't save you, but it would certainly start to feel like a good investment.

I am a 2nd year Analyst at a BB, and want to be in PE long-term. Have already reached out to HHs and landed a few MM PE offers. Can you please give a 5-year (ideally 10-year) outline of MM PE all-in compensation, and promotion scheme?

MM PE comp is highly dependent on the individual PE firm. For someone with two years of investment banking experience, the low end of all-in MM PE comp will probably be in the $125K range (micro funds) up to ~$250K (large cap funds). It is very rare to get carry as a pre-MBA associate, though some firms will offer a nominal amount. You can expect to stay as a pre-MBA associate for 2-3 years (many will tell you that their pre-MBA program is either 2 or 3 years). After that, you're usually required to get an MBA.

Once you have an MBA, your title will either be Senior Associate or Vice President. Expect compensation on the very low end (micro funds) to be ~$175-200k. I really can't comment on the high end, but I would guess it would be somewhere in the $300k-$400k range. At this point, about 50% of funds will offer some level of carry (according to a 2012 PE compensation report I have (--no, I won't share it--)). Promotion at this stage largely depends on performance, deal experience, personnel needs, and overall contributions. Expect a minimum of two years and a maximum of five.

The general organizational structure tends to be: Analyst (pre-banking, some firms don't have this position) --> Associate (post-banking, pre-MBA) --> MBA --> Senior Associate --> Vice President --> Principal --> Partner

Also, can people from Top Law Schools make the move to PE with only IBD analyst experience? I was accepted to Harvard Law School, and chose to defer for my analyst stint. I'm slated to start at HLS this fall, and was wondering if I can land post-MBA PE roles straight out of Law School. I can take classes at Harvard Business School as well (up to 10 credits), will that help me in any way? How receptive do you think firms will be, if I take part in HBS info sessions, and networking events? One of my friends is a 0L at UPenn, and only has IBD summer internships. Can he end up in PE after Law School?

I don't know anyone that was successful at transitioning from law school directly to PE, even with prior experience in banking. Without prior experience in banking, I'd say that there is an absolutely minimal chance. I think your best bet would be to do a dual degree MBA/JD as this offers the most flexibility. I don't think 10 credits at HBS will make a difference. Most of the senior PE professionals I've spoken with do not view the actual classroom learning as valuable, so the fact that someone has attended MBA classes is not significant. Investment Banks seem much more willing to hire law school students (in place of MBAs), so my best advice would be to return to banking after school and try to flip over to the buyside through networking.

In reality, I don't know how you'll possibly survive three years at Harvard Law knowing that you don't want to practice law for a living. Law school is absolutely brutal (I've watched more than a dozen friends go through it). Like anything else in life, you won't perform well in the long term if you don't have a passion for the subject. It sounds like you don't have a passion for law school. Even though it is Harvard, I suggest you matriculate in a program that you are actually interested in.

After L-School, assuming I get into BB IBD as an Associate, and move into PE at a post MBA role, how would PE firms judge my law degree? And how many years do I have to stay in IBD before making the switch?

Really difficult to say how PE firms would view a law degree from someone working as a BB IBD Associate. I suspect this sort of assessment will really come down to the individuals evaluating your profile. Some people might like the diversity of skillset, while many might ding you for taking a non-traditional approach. I suspect it will hurt you more than help you as it raises all sorts of questions. Why didn't this person get an MBA instead of a JD? They left banking to get a law degree, only to return to banking? While you may be able to address some of these questions, they will cast doubts and some firms won't even give you the chance.

If you do go down that path, how long you stay will be largely dependent on you. It may sound silly, but I've heard of people lateraling out of the IBD associate role after only a few months in, while others take years to build up a network in order to successfully make the switch. Your results may vary.

Lastly, how difficult is it to get a post-MBA position without having/getting an MBA?

From what I've seen, getting a post-MBA job in PE is extremely difficult even with an MBA and with prior PE experience. I know of two recent HBS grads who had banking/PE experience before attending HBS and upon graduation, they didn't have PE jobs lined up, despite heavy interviewing. They eventually found them, but it took a mental toll and a couple months of unemployment. If you have neither of these, you'll be facing a very uphill battle and will have to rely heavily on your banking experience, interview skills, and network.

BTW, do you plan on applying to B-School down the line? After all, you worked hard to get a 760 on your GMAT.

Yes, that is currently my plan. It isn't required, in fact, the Partners at my shop would even prefer I didn't leave for 18 months. However, for the reasons I mentioned in a post above, I think it is worth it.

Provided that you don't have an MBA, how easy is it to lateral to other MM PE shops at VP/Principal level if you get laid off? And once you make partner, do you become immune to lay-offs?

My understanding is that the VP/Principal level is the hardest point to lateral between PE firms. At this point you're expected to have a lot of transaction experience and a functional network of professionals (industry contacts, service providers such as bankers, lawyers, etc.). Basically, you're expected to have a reputation in your market. If you lateral to a firm that has a different investment focus (industry, LBO vs. Growth Equity vs. Distressed, geography), a lot of your contacts and experience are no longer relevant. This sincerely limits what you bring to the table.

Furthermore, there are far fewer openings at the VP/Principal level than there are at the junior levels. Junior levels have a high level of churn due to how the pre-MBA experience is structured. Turnover from folks leaving to get their MBA or burning out creates a lot of openings. Once someone has attained VP/Principal level, they are a "career investor." Spots tend to only open up when someone gets promoted, fired, or leaves and there is no internal candidate to promote into their position. This all compounds with the fact that many PE firms run extremely lean at the mid ranks (hourglass organizational structure), making it extremely difficult to lateral at the VP/Principal level.

As for partners, they certainly aren't immune to layoffs. Partners are ultimately responsible for deals that they back and essentially have a set of deals associated with them. If that partner's deals aren't performing relative to other partners, it wouldn't be uncommon to see the under-performing partner essentially "voted off the island." This is most likely to occur at or near fundraising.

On average, how much higher is the all-in comp in MM PE, compared to BB IBD?

It's hard to compare two sets of highly variable datapoints. Once you get to the mid/high level ranks in PE, a lot of your upside comes in the form of carried interest. As a result, if your fund crushes it, you can easily be making millions while in your 30s. Your fund could also crumble and you could be living off your base/bonus (which is still hundreds of thousands of dollars). BB IBD is largely the same way, except they rely on revenue generated rather than fund performance. If I were to guess, I'd say that the MM PE is a comfortable 20-50% higher than BB IBD in light of the recent compensation changes at investment banks.

I'd say the main difference is stability. In PE, your base and bonus is typically paid by the 2% management fee as well as transaction/monitoring fees charged to portfolio companies. Even in bad economies, these fees are stable. As a result, you see a lot fewer layoffs in PE during the down cycles. At banks, the motto seems to be "overhire and overfire."

Have you seen anyone make the jump from MM PE to Mega Funds?

I know of one guy who went from a lower MM PE fund to a megafund as a pre-MBA associate. This is extremely rare though and I wouldn't count on it as a possibility. In reality, the skills gained/required in the MM are quite different than the ones gained/required at megafunds, so it is unlikely that someone will be highly successful in both areas.

Could you go into some depth about effective networking? After the cold e-mail and information interview, what are good ways to follow up and keep the relationship going (yes, I have the WSO Networking Guide)?

I'll be the first one to admit that I've done very little networking outside of that required of me for my job. I've also yet to read any of the networking guides available. However, I've had a number of people attempt to network with me and I can share my thoughts.

First, networking works best when you start networking early. If you're looking for immediate results, it is likely too late. You want to build a network in anticipation of your needs. As an undergrad, this means you shouldn't wait until the spring of your senior year to start picking up the phone. Build the relationship in advance so that when you do want someone to pass along your resume or support your candidacy, it isn't someone that you introduced yourself to that afternoon.

Second, find something in common with the person. This is why networking with alumni is so easy/successful -- because you instantly have a connection. When I go on marketing trips to meet with bankers and attempt to establish a business relationship, I never start the conversation with "what deals do you have that you can show me?" I start off by talking about the city I'm visiting, sports, deals that they completed, anything possible to establish that connection and ease into the relationship. People want to do business / help people that they LIKE and share common interests with. After the connection is established, then you get down to business.

You've identified one of the hardest parts of networking -- how to keep the relationship going. This is where the common interest is important. Every few months, you need to find a reason to interact with the person, even if it is an extremely brief interaction. Try to build upon your prior conversation. Things like: "Hey Jim, a few months ago when we chatted you mentioned you were working on closing a big deal. Thought I'd check in and see how it ended up." It doesn't need to be major, but the intent is to remain top of mind with the person and not always be approaching them when you need something. These brief check-ins tend to work best if they don't require a mammoth response. Two to three sentences would be best. It may even be helpful to immediately write down a summary of what you talked to the person about after a conversation. Jot down some "follow-up items" so that you'll have them at the ready a few months down the road.

Furthermore, if you ask someone for help on a very specific topic, make sure you follow-up with them to let them know the results. If Jim passes your resume to his buddy Mike and Mike grants you an interview, be sure to thank Jim for his help and let him know whether or not you got the job. I get frustrated when I spend a lot of time helping someone and then they fall off the face of the planet, never letting me know how their interviews went. A one paragraph follow-up email is an easy way to avoid annoying your support network. If they don't want to read it -- they'll just delete it or archive it.