Concerned About Switch to PE
I want to have a well thought discussion on the value proposition of moving to PE from IB.
Like anyone in M&A, it seems like the no brain switch. You have the opportunity to gain equity, more or less, through carry in the companies you work on. It's certainly shoved down your throat enough as the "correct" path.
What ruffles my feathers is this:
1) Significantly lower pay for the foreseeable future vs the sell side, unless you happen to get into a MF
2) Forced MBA costs $200k+ while you could've generated $600k+ on the sellside on the SS, that's an $800k opportunity cost equating to millions by retirement
3) No promise of a return seat and competing with former MF associates for seats at UMMs and MMs if they didn't get the return
4) The partner path feels unattainable. With the over saturation of the industry it seems like opening up a new fund is not wise, and people sit in these partner seats for life
5) The hours are not better, they're often worse
Investment Banking feels like an upper middle class lifestyle, where the opportunity to become rich isn't necessarily there anymore unless you're a generationally talented MD at an elite bountique.
Is PE different? Is anyone running calcs on their bosses carry for active funds? Would be interested to see if they're still reigning it it
Answering these from a PE lens:
1) Significantly lower pay for the foreseeable future vs the sell side, unless you happen to get into a MF
I mean you know why that trade off exists. Significantly outsized pay if you go the distance which requires a greater discount at present by comparison when adjusting for how competitive the seats are. And it's not THAT significant a downgrade unless you're going from like a BB to a regional LMM. It's not like you're taking a $100-150k+ haircut from banking unless you're leaving a top BB/EB for some regional LMM, in which case you more than likely have much more pressing issues to consider.
2) Forced MBA costs $200k+ while you could've generated $600k+ on the sellside on the SS, that's an $800k opportunity cost equating to millions by retirement
This seems like a made up or not well thought through concern. Unless you're at a MF/old school UMM most shops aren't that hardline about getting an MBA anymore, and that's only becoming increasingly common as time goes on. I know a lot of folks in MM/LMM who make the VP+ promote just fine by being good ASO/Sr. ASOs and after that, and if you really have to get an MBA there are a not small number of firms that will either 1) in part or entirely pay for your MBA, or 2) have partners who will write in support of you and help make it more likely that you get into a top program. $800k opcost over 2yrs isn't a lot in the grand scheme of things, and the relationships/network that you're supposed to be building during that time should far outweigh that cost in the long-run.
3) No promise of a return seat and competing with former MF associates for seats at UMMs and MMs if they didn't get the return
If you're a top performer and they're requiring you go get an MBA, most firms will actually offer an explicit return offer on completion. If you're going and getting an MBA by your own choice, then there's really no obligation there because it's known you're doing that to make yourself a more compelling candidate to recruit elsewhere. If you're not a top performer and being told to get an MBA, as I've come to learn (this may come as a surprise) it's often a very kind way of them saying they don't want you anymore and just don't want to fire you. My team recently dumped a co-founder who had HSW MBA and BB/MF pre-MBA exp because it became clear over time they just weren't a top performer and would be a drag on the rest of us over the long-run. The unfortunate thing about those types is because of their "golden path" background they often feel entitled to success and that can cause them to rest on their laurels. You're always competing in this industry so if you have a problem with doing that, whether it be for jobs or deals, you're not going to enjoy what the rest of the career has to offer.
4) The partner path feels unattainable. With the over saturation of the industry it seems like opening up a new fund is not wise, and people sit in these partner seats for life
That's by design. It should feel this way in every industry. This isn't a role for people who managed to survive for 10-20 years and earn seniority like many corporate seats, this is for the top brass who bring in the $$$. The journey to the top is going to be hard, near impossible for 95%+ of people. So unless you're in that minority, you either have to start something yourself and take the founder risk or leave entirely.
5) The hours are not better, they're often worse
Because the work is harder and you're getting paid more as you get more senior.
Lost me at 800k opportunity cost isn't a lot
It's hard to associate a value w/ relationships you build during MBA since monetization of them in future deal opportunities will vary widely. But if you're someone good enough to be partner track and get that far, it will outweigh that after sourcing, closing, and exiting 1 deal and collecting your carry check.
$800k over 2 years is less than or equal to what a MM VP makes over the same period in just their cash comp (not accounting for DAW) - it's a no brainer. And that's w/o needing the MBA promote. If you're post-MBA there's often a premium associated with cash comp (for the funds that require it at least). To be fair, if you can't do that math you probably don't need to worry about reaching VP or getting an MBA anyway.
The golden age of PE was 6-7 years ago.
Try 20 years ago
I think it was being in a seat 6-7 years ago that you had started 20 years ago, so getting meaningful carry during those years.
I think the issue with PE as a subsector is that all of the answers to these questions vary dramatically. Though I agree with almost all of the points the above poster listed, my experience has been so different than regular way thinking.
After switching to PE, my hours got dramatically better. What was a standard 80-90 hour week at a bank became 60 with weeks around this time of year barely breaking 40.
I love the culture of my firm, and the managing partner has been an incredible person to work under from a mentorship perspective but also from a leadership one.
The work is different but much more engaging and fun. Banking was a slog and the end goal is to become a salesman selling cookie cutter products where once a year you can be a little creative.
The world has so many redundant and useless PE firms, like they have investment banks! Why join one of them? There are plenty of interesting PE shops that break the mold what you’ve described. You’ll be taking a pay cut, absolutely. But you’ll probably find yourself on a partner track that makes it far more lucrative in the end.
I’m telling you to find a needle in the haystack, I acknowledge that. But the point I’m making is there are so many other firms out there that aren’t cookie cutter UMM/MF sweatshops doing boring work with extra 0s on deal sizes.
Have had the exact same experience as you since I joined PE.
Was there anything you noticed during the recruiting process that gave you the indication that the culture at your shop was unique / different than the sweatshops
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