Finance can ruin your career (hot take)
investment banking = offering commodity, rent-seeking services for exorbitant fees by marketing pieces of paper
private equity = acquiring pieces of paper and selling them for more than you paid for them
none of this adds a great deal of value to the world. sure the returns are real, though driven primarily by inefficiency in private markets and financial engineering, but real and noble value creation is achieved by forming and/or growing a business
moreso than any other career, you are very long one firm and career path as a PE investment professional in particular. you become a "deal guy". a highly compensated position in the long term, but ultimately not a role that has a ton of value outside an investment context. sure you can go do corp dev/M&A somewhere if you flame out but your skillset isn't that tangible/transferable outside of a few other paths. so you better be damn sure you can be a deal guy for a loong time, otherwise you may be ahead of your peers now, but you can easily fall behind later
oh and by the way, unless you're at a super established mega fund, your firm could blow up with a couple mistimed bets. or founders could get selfish and greedy with carry economics (which already doesn't actually cashflow for years and years most of the time). just lateral to another firm you say? well sure, but that means giving up all your unvested (and potentially also vested) carry. and if you are lucky enough to be at a mega fund, good luck navigating the internal politics and overcrowding at every level deftly and getting to the partner level, which is more difficult each year
i guess said differently, you have a TON of optionality in first few years of a "high finance" career path, but it diminishes meaningfully after years ~3-5. just something to think about
i don't have a question. that's it. that's the post.
what's your long term goal?
forming a business
what’s your plan? build or buy?
This is all true.
Considered to add value to the world —> Increased demand —> Growth in price (i.e. exorbitant fees / highly compensated PE professionals)
What’s ur take on this
https://www.seattletimes.com/seattle-news/inspiring-story-of-seattle-ma…
what's the alternative?
corporate = pushing around paper to justify your job at a business that's been on autopilot for 15-100+ years
startup = pushing around paper to please VCs enough to give you more free cash at a stupid valuation whilst hiring an army of stackoverflow searchers and glorified door to door salesmen
yeah i don't disagree
point is just pe/ib/etc gives you higher salary near-term but at cost of less flexible/transferable skillset and lower optionality longterm
Curious what you think which starting career path would give you more optionality long term?
I mean, this is pretty easy to prove wrong.
Compare the outcomes of the population of people who start off in IB / PE / Consulting / Big4 with the population that start off in corporate land and it's pretty easy to tell which path has better career capital. Top tier biz jobs are the epitome of business career optionality plays.
I'd agree with you if you gave markets focused (rather than business / corporate finance focused) examples instead. The majority of S&T or being a Macro PM / Analyst etc don't really lend themselves to career optionality but IB? PE? Fundamental HFs? You can practically plug and play anyone coming from those spots into any random finance / strategy corporate role.
don't underestimate selection bias
in retrospect i'd rather have started in business, crushed it for ten years, been a seniorish exec somewhere pulling mid to high six figures. risk/lifestyle adjusted optimization bliss
ten years onto the IB/PE track and you're still grinding through IC memos and dialing into conf calls saturday mornings. ooh the carry, the prestige, you sure are the "apex predator" of high finance. enjoy it while it lasts :)
in what f500 are you pulling mid to high 6 figures (500k+) after 10 years? You're what a director by that time? 500k sounds pretty high for coprorate at that level
Hahahaha, senior exec in ten years starting in corporate land. Good one dude. You'd be lucky to be a senior manager in that time frame, director tops. Even if you "crush it".
that’s it! I’m pivoting to soundcloud rap
nice choice! good lifestyle / interesting risk reward profile. best of luck
What career path gives you "a ton" of optionality after 3 to 5 years compared to finance? And why, just to delay making a decision on what I want to do?
>otherwise you may be ahead of your peers now, but you can easily fall behind later
Peers in which field?
I mean I’m not sure what you mean by not add value? Value is measured as consumer willingness to pay minus cost to produce. So consumer surplus + profit. A pe firm makes money by increasing profit in portcos over time (or multiple expansion by decreasing riskiness of those profits). Therefore they created value. You could argue that they simply (I) took advantage of the tax shield of debt and (ii) just transferred consumer surplus to profit.
I find those two counter arguments hard to believe esp today where debt tax shields are capped, a lot of deals are sponsor to sponsor (high multiple paid / cap structure alrdy optimized).
So they do create value by increasing profitability and therefore capture some of that value. Any refutation around rent seeking in the form of fleecing lps with fees is also wrong bc pe is shown to equal mkt returns post fees, not underperform. That’s exactly what you’d expect in an efficient market (with benefits to lps involving diversification / lower vol)
i did not say “adds zero value” re-read my OP
This is why people need to have a diverse skill set
Duh
Agreed (in spirit at least - the details of the post can be argued all day, and I don’t mean by me).
Getting ready to move out of IB and don’t want to become a “deal guy” long term I don’t think but unsure where to go. Same goal as you with regards to business ownership and feeling that while IB / PE is interesting, it isn’t really getting me much closer to realizing that goal, especially when you factor in how the hours alone crush the ability to spend time on creating something.
WHAT DO?
i'd spend 2 years getting more deal skills (PE has been vastly more valuable in terms of skill building for me at least, YMMV), then either start a business or buy a business (maybe with an MBA inbetween). or, if you want stability and don't see yourself grinding for years and years, join a corp that you're interested in at the corp dev/strategy/operations (or a different vertical if you feel strongly) ideally at the ~VP level. if that sounds boring, do it at a later stage start up instead of a megacorp
Can you expand on what deal skills you built in those two years of PE that made those two years worthwhile? There are definitely benefits to around investors and participating in the buy side of transactions but struggling to bridge how those benefits outweigh the costs of burying my head another two years vs. finding something still relatively high paying, occasionally engaging and that provides me with the time to attempt ventures on the side?
This isn't a hot take so much as a simplified view of the economy. Some of the biggest private equity funds / actors are really pension funds. If those pension funds don't succeed in generating value, people who are looking to retire won't get as much money as they thought / believed, and will likely have to work longer which will lead to a shittier lifestyle.
But hey, if you open a coffeeshop, that's a business that generates value, so thats better right?
re: skillset, I totally disagree. Particularly for folks in PE who specialize in the operations side. They are literally managing / running a business.
Finally, "...you have a TON of optionality in the first few years of a 'high finance' career path, but it diminishes meaningfully after years 3-5". What career path's "optionality" doesn't diminsh after you've been doing it for 5 years?
I don't disagree but its because PE has gotten bigger. Its the classic scale issue that comes about, that makes things like MOIC important. There are only so many opportunities out there, and you can't expect 20/30/40+ percent returns if the target companies are already in the billions to begin with.
Qualified doesn't equate to capability. That's like saying a practicing lawyer with 20 years of experience isn't qualified to do much outside of legal work. Same for a doctor, accountant, or baker. Don't see any argument/validity here.
Ah my apologies! I didn't see how 'nuanced' your point was. Explain 'flexibility'. Explain 'locked in economically'. Why stay for a decade+? The lifestyle/hours are rough and you're compensated appropriately. There aren't many jobs out there (especially apart from things like top athletes, musicians, etc.) where someone in their late-20s / early-30s can be making 7 figures.
I'll shelf the whole "does IB / PE add value to the world" debate because there's a lot there to unpack.
I would say that in the PE career path, your point on optionality is simply (a) not true, (b) not relevant.
(A) Why not true?
If a mid / senior level individual for whatever reason discontinues in PE, he / she can very conceivable fill any of the following roles - another PE firm, a family office, non-profit investing (e.g., endowments, foundations), C-level position at any operating company (most likely CFP / head of corp Dev), a senior role at any large consulting firm (this has happened), banker (unlikely to happen by choice), board member at a multitude of smaller companies, start-up, finance processor / teacher somewhere. Being a mid-level / senior PE professional literally arms you with one of the broadest and most versatile skill-sets of any job anywhere - not to mention it typically comes along with a very large Rolodex. There is also a significant imbalance in supply / demand this level - i.e., there is a significant need for individuals with these broad skill-sets, but very few people on a relative basis who possess the aptitude to do all of them well.
(B) Why not relevant?
A mid-level (VP or above) individual at a sizable PE fund (UMM/MF) is getting compensated (w/ carry) into the 7-figures by the time they are in their very early 30s. If one is targeting a upper-middle class lifestyle (nice house, 2 cars), it is entirely conceivable to basically retire from finance completely in ~5 years (or the duration of 1 fund). So 'optionality' really doesn't matter in the sense that you really don't need a solid Plan B. And if you want to really dream big? Then see answer part (A) where you still have significant options available (w/ the most likely that you're going to another fund).
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