"Leaving IB Soon, Final Rants" - The Follow-Up

Hi all,

Earlier this May, I posted a discussion called "Leaving IB Soon, Final Rants". While my original intention was to vent out properly one (last) time, this post ended up getting way more attention than what I expected and I was very surprised to see the discourse it had created on this website. For those who are interested, click on my profile to see my previous posts - you should be able to find it there.

One of the recurring themes in the comments, apart from wishing me good luck for my future endeavors (thank you), was a request to post a follow-up after my move to the buyside. While I think that it's still quite early for me to write about this as it's only been c. 2 months since I joined, I thought that as quite a few people in my team have left for holidays and it's pretty quiet, now might be a good time. Given that I've been getting a few cold messages via linkedin asking for guidance on recruiting, I will also share my thoughts on how to get ready - hopefully some people will find that helpful too.

While I'm sure any reasonable person would not treat this post as such, but whatever I write here is not an attempt to generalize the recruiting / buy-side experience. I can only write about what I've experienced. I understand that every firm / circumstance is different and experiences might vary, and I don't intend to make a blanket statement about anything. Boring disclaimer done, let me start:

My recruiting experience, and tips

1. Take an organized approach with headhunters

First thing I did was to find out who are the guys I should be talking to. I won't share the full list because this is location specific and coverage of firms change from time to time, but the approach I took was the following. First, simply type up 'list of buyside headhunters/recruiters' etc. on google. While some information would be outdated, you can still get a decent list to start with. Some threads in WSO are also super helpful. Then, from there, look up the names online - check their websites (are they still there? Do they have a website where they post jobs? If so, which firms do they cover?), look them up on linkedin (they often post jobs via their page so it's one way to see what they do), and read their report if there is any (some of them post 'success stories' where they have a list of moves they worked on during the last period - without the candidate name but with the job title and firm name/type). Add / delete names as you go - 'similar' and 'related' posts should pop up and you can pick up names. For me, I ended up with c. 15-20 names once this exercise was done. Put everything into excel.

Then, I tried to find 1-2 contact details per headhunter and started sending out the emails. This shouldn't be too hard, as often times there is a team page on the website, or there is an email address in the job posting. Make sure your contact is the one who is covering the type of firm you want to move to (e.g. don't put down the name of the guy that covers debt if you want to do equity). If not possible, politely ask them in the email to refer you to who can help with that specific type of recruiting.

From there, add a column where you put down latest correspondence, and 'status' - are you waiting for an email, are they asking to set up a call / is there something in the calendar already? Is there an opportunity that you are discussing? This will make sure you are on top of everything and don't miss out. 

2. There is never a perfect time

When I started to think about the move, I was not fully confident with my sector knowledge to make associate in my team. I can say this like it's nothing now, but it was quite tough because I lateralled once from one bank to another (different sector team) and therefore I was behind other more junior analysts when it came to sector specific modelling, terminology etc. I was in the infra team so this was actually quite important. Because I know how analysts think about associates who they think are less qualified, I was getting quite stressed and was thinking that I should probably stay for an extra 1-2 years to learn more. I'm sure there are many people who feel this way - what if you get an interview and just completely screw up? Shouldn't you start talking to headhunters when you are 'ready'?

While there is some truth to this, the 'perfect time' will never come. I personally think that the right approach to this is to spend c. 2 months practicing 3FSM/DCF/DDM/LBO, then start sending out the emails. The 'perfectionist' approach doesn't work well here because of few reasons. Firstly, it's really hard to know who recruits when. I don't think people should spend too much time figuring out when their favorite fund recruits and try to hit that timeline, since recruiting happens throughout the year. Secondly, you learn a lot through actual interviews more than anything - you get real life case studies, produce materials under time pressure. Lastly, the marginal benefit of practicing modelling / studying materials over and over again declines quite quickly, assuming that one is taking it seriously. I would therefore recommend against waiting until you reach the point where you are able to build every bell and whistle in the model; it's simply not worth it.

3. Practice efficiently

The biggest problem with preparing for the buyside is that it's hard to check if you're doing things right. It's not a 'walk me through a DCF' anymore where there are set answers, and there are no question banks that tell you what you should know. People will keep telling you to 'make your own framework' for modelling, but for me this was quite hard to do because I never knew what was required. Let me share what worked for me so you don't waste time trying to understand some sort of convoluted model, falsely believing that that's what you need to build:

First, go purchase any PE interview prep bundle where they give you case study examples and modelling templates. I got the WSO one (and I was happy with it), but I don't want people to feel that this article is an ad, so I'll be completely honest - just get something that doesn't feel like overkill. Like, you know that a model with 1500 rows is overkill (e.g. Macabacus). Get something with 300-500 rows max. 

Then, re-create the model in a new tab, in a way that you find most comfortable replicating. For instance, I put the sources and uses tables on top of each other as opposed to side to side, because the latter would mess up the column width of what comes below and I will waste time trying to fix this. I've trimmed down the model to only include the following - i) assumptions section (growth rates, multiples, interest rates etc), ii) sources and uses, iii) Financials (what you need to calculate cash flow), iv) Cash flow calculation (link from iii)) v) Cash and debt schedule, vi) Exit and returns calculation, vii) Sensitivities. All in one tab, from top to bottom.

I've managed to find the best layout that works for me - for instance, column A width of 3, column B width of 50, and everything else 12.5. No cell colors, just black line where you add things up, bold font for key stats. Once you build this 'template' of your own, keep replicating it until you can do it without thinking. Just make sure that the numbers tie to what your 'example case' is showing - that way you know it's working correctly. Ideally from start to finish the modelling should take 30-40 minutes. In practice this allows you to spend 30-60 minutes incorporating the complexities of the case study and producing outputs.

As for the deal discussion, prepare a ~3 minute deal synopsis. Don't try to cover everything in one go - just talk about how deal was sourced, why it made sense, size of the deal, key issues raised etc. Once you walk through this people will then ask the obvious questions like 'what was your role' or 'how did you model XYZ'. you can then discuss these in detail - I assume preparing how to answer this shouldn't need an explanation. 

Also, create an excel sheet per fund that you are interviewing with. There, put down 3 deals that they have done recently. Look online if there is any recent news, why they did it, and if you see any trends (e.g. are they doing care home deals recently?). You should have pitchbook, Mergermarket etc. so this should be quite easy to do with the 'deal search' function. Then, bring these deals up when you answer questions (e.g. this is why I found the XYZ deal interesting - you've done it so that you can ABC and I think that strategy works because of DEF) - most likely they will ask if there was a deal you've read about anyways.

4. Don't overestimate the competition

Surprisingly, I've made a few major mistakes during my case studies and still moved on to the next round. Same for the firm I've ended up joining - I mis-linked a line which led to a lower IRR estimate. The associate even pointed this out. Now, you might think that this would be an 'auto-ding' given the competition. However, in reality there are lots of candidates who fail to produce 'presentable' output in time, and there are candidates who fail to recover when someone points out their mistake. In my case, I simply acknowledged that it was my mistake, and 'explored' the issue together with the interviewer live. I fixed the issue, told him what the revised IRR was, and explained how that would change my views on the transaction. By doing it I tried to demonstrate that I knew what was wrong, and the honest approach worked! In my view, you F-up more when you act like you F-ed up. Of course, this doesn't mean that you should feel ok making mistakes, but I just wanted to say that interviewers focus more on the candidate's understanding of how the analysis works / how he/she thinks, rather than if the numbers tie 100%. This is why in most interview guides they tell you to not spend time balancing the B/S, if the differential is not meaningful. Relax and focus on what's important.

My impressions on buyside work (so far)

Now, let me move on to how I'm finding my new job so far. Again, it's only been a few months, so who knows, I might find it dreadful once summer is over. But I've gone through a full deal process (some condensed) a few times already so I think my expectations should have a small margin for error. Below are my observations:

1. You get paid to learn

This is the best part of the job in my opinion. As you are not 'serving' a client any more and you are the client, things just come to you in a way that is easiest for you to digest. If there is an industry that you don't know too much about, the firm will spend money to do DD - organize expert calls, get reports from consultants, arrange direct calls with C-suite people. It's frankly quite amazing how you can get unrestricted access to this level of high quality information. Sometimes in a few weeks you will know about a sector / company enough to talk about it with confidence in front of IC members. While I will have to admit that I've learned quite a lot during my time in IB, I don't feel that I got enough time to digest everything that was thrown at me. Often times you just do Ctrl+F to find what you need, include it in the deck and move on. You 'orchestrate' the DD process but people doze off during these 3 hour technical sessions that no one really cares too much about. Now the focus is on understanding and digesting information to see if the investment works, and I think it makes a big difference.

2. You take much more responsibility

While I understand that some will say PE is simply banking 2.0, I think even those people will admit that the responsibilities of a PE associate are much more than that of an IB associate at the same level. I've been told to make direct calls to different parties - the advisors, lawyers, the external DD agents, even the CIO if I need to. I feel that there is a lot more autonomy permitted and it's forcing me to think more because I am responsible for my own screw-ups. Seniors are there to cover if you are unable to answer a question, or if there is anything you are not too sure about, but you get a chance to hold the steering wheel. At least in my previous bank, I've not seen too many associates describing their job as such.

3. You are paid better (footnote: data points TBU)

Based on the information I have from my peers who are in the industry, compensation in buyside firms are sometimes substantially higher than that in banks. While the base salary is in line (or sometimes actually very slightly lower) than IB, bonuses are much higher. I've only rarely heard about someone getting a 100%+ bonus at the associate level in a BB (EBs maybe - Centerview?), but 150%+ is not uncommon in PE - highest I've heard of is 220%. I once thought that this is probably because of the carry, but given that some data points come from SWFs or infra funds, I'm not too sure how they pay so much. Please feel free to comment on this.

4. Work-life balance is 'generally' better

Again, I don't know - there are probably PE houses out there where you do 3AMs every day and everyone is suicidal. But I can at least say with confidence that this is NOT the norm. Unfortunately, I 'can't' say that this is NOT the norm for banks. Especially after COVID we all know that 9PM is the new 5PM and we all feel paranoid going to bed at 1AM at the fear of missing an email that needs immediate attention. I now know the rough schedule - when we will be focused on DD, when we will need to produce the IC memo, when we will get comments on the IC memo etc. and therefore I can schedule accordingly. During the past 2 months, my work ended at 6pm when things were not so busy - and people left knowing that they were really done for the day. As I mentioned in my previous post, the stressful part is not just the hours but the 'unpredictability' - this part gets a lot better once you move to the buyside. 

5. There are proper reasons for everything

People don't care about petty things as much. And I'm not just talking about formatting or some sort of wording issue. I'm also talking about numbers - yes, the modelling is important and ideally there should be no errors, but people tend to be more chill because they are more focused on the 'high level' IC questions. Is the IRR now 18.5% as opposed to 18.7%? It's fine, it's not going to alter the investment decision - we can fix it in the next round of the IC. Did the IC get postponed by a week? It's ok, as long as multiples didn't move like crazy we don't have to stress too much about updating the whole IC deck - if we can, good, if not, it's fine. 

I was super obsessed with trying to become the master of 'technical' skills when I was in IB. It's so easy to compare yourself to the 'best' analyst and start feeling bad about how you are not able to build a 50 MB model with macros, VBA etc. While I completely agree that knowing how to build a model has a strong correlation to knowing how the model works, I'm starting to think that I was being too harsh on myself for not 'being the best' at something that is ultimately only 'part of the job' - and by job I don't mean IB, but 'transactions' overall. I think VPs and above in IB would agree to this - from the sell side what matters most is being able to craft a 'message' with data, not getting caught up with 1.2m pension liabilities. It would be great if this wisdom is shared with more junior staff, but at least based on my experience that was not the case. In my current role I am fully aware why something is being done, and usually the rationale is robust and undoubtable. It's helping a lot in terms of morale as I know that my time is spent doing something meaningful.

Conclusion

Now that I re-read the above, it does feel like I'm now quite biased towards my buyside experience. But the purpose of this was to show a very honest view, a 'follow-up' to my previous post where I wrote down a long rant about what I didn't like about IB - so, I think I delivered what people would've expected. My aim in this post was to openly discuss if anything has changed, and I think a frank comparison would be quite helpful for those who are considering the move. Like before, I am very keen to hear your thoughts - Surely there will be things that I have not experienced since moving, and I'd love to see your contributions to have a more 'balanced' picture as this post is intentionally biased. 

Different people are suitable for different roles - after all the investment sector cannot exist without quality advice and analysis that is provided by the banks. Needless to say, there is so much value add coming from the banks during a transaction and this is only possible because there are people with the right skill set who are undertaking such roles. I still have so much respect to my ex-colleagues who are able to do things that I just couldn't cope with. Wish the best for all the readers and looking forward to any feedback! 

 

Good shit, sorry to be that guy but could you elaborate a little more on these infra >200%+ bonus structures. Are these senior associates or fresh out of banking people.

Also, is that with the leveraged coonvest carry etc at smaller firms. Or were they massive funds. Just curious thanks for the write up though. Just wondering who tf pays that much like that, lol.

 

Sure - link below:

https://www.wallstreetoasis.com/forums/leaving-ib-soon-final-rants

Like many people, I had a broad idea that I want to 'move into investments' one day but didn't have a clear picture. Things got a bit clearer as during my IB gig I got to work with a few PE firms and I was able to understand what their job involves. 

 

What specific parts of this would shape out differently? Feels like it was mostly objective

 

Impressions can't be objective, but to quickly to answer your question in the order of OP's impressions:

1) You get paid to learn -- You get paid to learn in IB, also, but like in IB, the learning curve flattens in PE also at some point and you realize just how process-oriented the work surrounding M&A really is, regardless of where you are along the value chain. The wonder wears off relatively quickly.

2) You take much more responsibility -- Absolutely true, but that was also the feeling you got while in IB at the start and it wore off. It also amounts to longer hours the more trusted you become to lead things on the team, which is great if you're truly all-in on the job but people tend to realize they're not as passionate about what they're doing when the gears really start to grind.

3) You are paid better -- Wrong, at least in general. I'm not trying to shit on OP but not realizing how much banks like Centerview actually pay when making their assessment means it's tough for them to accurately compare compensation in general. If you're at an MF, you will get paid out more than if you stay in banking, but most bankers don't get there. 200% bonuses in PE is also not common, based not only on my experience and that of friends but compensation reports.

4) Work-life balance is 'generally' better -- Maybe. It varies from firm to firm. It also varies deal to deal, and OP is barely ramping up at their new firm (only ~2 months in). You need more time to truly assess WLB, because individual deal teams, deals themselves and deal environments determine how much free time you end up with.

5) There are proper reasons for everything -- Maybe. This also varies from firm to firm. A lot of due diligence in my experience is box-checking that wouldn't be done under truncated exclusivity periods. The more time you have to close, the more diligence people tend to want. There's a point at which diligence volume starts to seem more like theater for LPs in case deals go south. Not saying it's totally pointless but the marginal benefit is questionable and reasons start to feel less and less proper as more gets piled on.

I don't want to sound cynical or undermine OP's experience. I appreciate this post and their last, and I think more people should make them, but I wanted to throw it out there that 2 months is really not enough time to gauge a firm and whether PE is something you'll really enjoy.

 

Of course, even out of infra there are always models that go beyond 5,000 lines. And this is actually necessary because you have to consider tariff formulas etc. and there there are loads of variables that go into it. What I'm saying here is that even in a 3 hour long case study interview - probably the longest kind out there - no one is expected to build this kind of stuff in an interview. Some interview materials are clearly overkill where they do multiple refinancings, do dividend recaps, and do some other funky things here and there. I just wanted to make it clear that this is simply not what people should be practicing. 

 
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