Career progression & comp NPV in UK's MFs vs MM PE firms
In terms of career progression (long-term probability of promotion to the level of principals, MDs & partners) how do MFs compare to MM PE firms in the UK?
How does the comp NPV compare (MF vs MM)? Is a career at a megafund neccesarily more lucrative than that in an MM PE fund in UK? Asides long-term NPV, are Associate incomes (including carry) always invariably larger at MFs?
Is there any significant difference in job security between larger firms & smaller PE shops?
I’m in MM London and I’d say I’d expect NPV of an Associate at MF to outearn MM.
But - this assumes they get promoted which feels harder at a MF - there will inevitably be churn before the VP / Principal levels.
I imagine people end up stepping ‘down’ to UMM / MM funds or going to another industry if they can’t make it to those levels.
I would like to do a cohort analysis almost.
From my perspective, I guess my gamble is trying to ‘grow with the fund’ in order to be able to continue progressing up the hierarchy.
I think there have been a few other posts on this from a non London / non geographic specific context.
Thanks a lot. The problem is that non-London posts have information that isn't useful for UK in topics such as this.
By "churn at MFs", do you mean that there is lesser job security at MFs (compared to MMs) once the initial Associate contract runs out (i.e. higher frequency of getting fired than at MMs)?
Not job security per se. Just in terms of headcount - think of pyramid in hierarchy, you need more grunts for DD + modelling vs. # of Principals / VPs. So, naturally not everyone can progress - people won't get promoted so will end up having to leave.
Could you share your comps range incl. carry potential?
It’s so hard to model because it also depends on fundraising and frequency of fundraising.
For instance, let’s say I am at a £500m fund and getting 100 bps that translates to £1m of money at work (Assume 2x return so £500m profit x 20% carry pool and multiply by 1%). But imagine we fundraise in 4 years (vs. five) and I get the same allocation on a slightly larger fund, it can be very healthy.
At MF, probably more mouths to feed (even if staffing is lean) so carry allocations smaller - but pie is larger. My general rule (even for Mgmt teams and their incentive scheme) is larger pie > than higher % of smaller pie.
I do apply a discount factor to the carry (it makes sense to use the rate on our loan notes as this, as this is effectively the cost of equity).
And then weight on the basis of being promoted / progressing up the ladder - probability of which is different across larger and smaller funds.
In short, I basically think - IF you get promoted at MF and manage to keep in, then you can do amazingly. But, as Mergers and Inquisitions point out, there just aren’t that many roles - and they get scarcer higher up the pyramid.
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