Hot take: I'd rather be at a privately held fast growing UMM than a public MF
I'd rather take an offer from a privately held PE shop with $10bn Fund IV following a $5bn Fund III as opposed to a publicly traded shop with a $25bn Fund XIII following a $23bn Fund XII
Isn’t this the consensus view? Lol
This is a consensus view, not a hot take
sybau
🥶🥶🥶🥶
don't you have to finish your accounting homework?
For every Thoma Bravo, you also have a Clearlake that was fast growing until it wasn’t. Everything ends up being similar on a risk adjusted basis.
It was much better at Clearlake, whilst it was fast-growing. I think the best argument that is the consensus view is that simply more likely to get promoted at the growing MM/UMM, as well as potentially higher carry. One of the biggest things that is hardest in PE is to get promoted, so if a firm is currently growing a lot seems like the ideal spot in the sense that promotion odds are much higher.
I don't think there are many that will disagree with you in IB or PE currently tbh. I think the consensus view is that the best seats are growing larger MM/UMM firms.
This is one of the coldest takes I’ve heard in weeks
Of course. But the MF is a better return relative to risk you’re taking on an up and coming fund
what are examples of funds in this groups other than like gtcr
Extremely rare to find a career-track role at a scaled player these days, but they definitely exist. Below are a few very distinctive buckets of firms, in order of overall attractiveness of an associate role. Notice that fund size and promotion runway isn't always a linear correlation: some of the larger UMMs in the $8-12Bn latest fund size range have actually greater chances of promotion than the smaller MM PE firms in the $2-5Bn fund size range.
Note that none of the above funds are "new" by any means as they were all founded 30+ years ago, so they all have lived through many market scenarios, are cycle-tested and trusted by LPs even in the current environment. However, they've had a lot of success as of late when it comes to scaling fund sizes, and still have a ton of room for growth. Have heard that GTCR and Veritas usually push associates out after 2 years though, so maybe not good examples at the associate level. Hg and Nordic Capital are on missions to further expand their US presence, which when compounded with growing fund sizes should mean plenty of promotion upside for associates.
Fund size growth for many of these smaller UMMs have stagnated, and growth runway is limited compared to the above bucket due to (1) less scalable strategies (2) less differentiation (3) less stellar returns. As such, associate roles at these places are usually 2 years and out.
On the scalability of strategies point, one key aspect that differentiates the larger UMMs bucket from the smaller UMMs is the track-record and ability to play in the mega-cap space ($5Bn+ TEV deals). Similar to the names in the bucket below (MM PE), these smaller UMMs have likely missed the window of achieving fund size escape velocity, and won't have the ability to grow upmarket like the firms in the first bucket.
Mixed bag here with some historically "reputable" firms having outdated perceptions - e.g. the likes of Centerbridge and Cerberus struggling with fundraising and declining fund sizes. Similarly, have heard of multiple underperforming portcos under GI Partners and WCAS, with GI struggling to fundraise recently. WCAS's fund size trajectory has stalled / declined since their 1998 fund vintage (inflation-adjusted) due to inconsistent returns; their 2022 fund is marked at a -9.9% IRR though might be a bit early to tell. Audax and HIG have grown but the strategy of buying a high volume of small companies might not scale well, so fund sizes might stagnate going forward.
Nothing much to say here as many on this forum are probably well-aware, avoid at all costs.
This is a good rundown and I think mostly true. The caveat about the so-called "UMM" category is something to watch out for; Veritas, GTCR, New Mountain will probably look and feel a lot more like a MF from a career upward mobility standpoint if you're an associate joining today. If you're a VP there with a couple of years under your belt and a growing slice of the (growing) pie, then congratulations, but remember we didn't necessarily think of these funds the way we do today five years ago (or 6-7, when that lucky VP was theoretically a banking analyst recruiting for PE). It's not easy to predict but you ideally want to get on the rocket ship before everyone realizes it's a rocket ship. Today, that might look more like JF Lehman (I don't work there, just an example) where you have a place with a well-defined niche they stick to and are good at/differentiated, good track record of returns and importantly returning capital, raised an upsized fund last year in this terrible fundraising environment, etc. Symphony might be a similar example in the tech space, Altaris in HC, etc. And yes, if you joined Clearlake 15 years ago you've made a fortune, and if you joined Clearlake 3 years ago you're probably staring down the barrel of worthless carry and no room to move up so it can break both ways. All to say, when we all see New Mountain close a $15B fund and everyone rushes to conclude that's the best possible place to join if you want to build a career, it all goes back to that old human tendency to construct straight line extrapolations of past performance. Maybe they'll be in the top quartile for performance and the next fund will be 25B and you'll hit the jackpot, or just as likely they'll do okay and raise a similar sized fund which is fine and dandy if you're a partner but less attractive if you're a new VP hoping for a piece of the action. As with anything in life, you're probably going to take some risk if you want a shot of being at the next NMC or Veritas.
One thing that hasn't been commented on is it'll be interesting to see how some of these firms that built their franchises doing truly middle market deals (like NMC) scale to deploy their new bigger funds; do they do more similar deals (of potentially iffier quality), do they do bigger deals, etc. Not always a smooth adjustment.
More background on providence and BC?
Agreed that this is the consensus view, not a hot take. Taking the privately-held UMM offer would result in much greater risk-adjusted career earnings, especially if you want to be a career PE investor.
Many younger folks on this forum vastly underestimate the "risk" involved in joining MF PE associate programs, which in most cases are 2-years and out. Over the years and especially in this market, I've encountered way too many resumes of ex-KKR/TPG/etc PE associates that got pushed out after 2 years and struggled to land a PE job 1-2 years post their associate role. Some of them ended up settling way down market, and most were forced to exit PE all together.
The struggle is real when it comes to post-associate PE recruiting, and the "brand name" aspect is quite overrated and has been significantly diluted due to the large associate class sizes at MFs.
That said, these types of roles (career-track UMM PE) are extremely hard to come by and in most cases a lot more competitive than the 2-year and out MF PE associate programs, due to much smaller class sizes. The hiring bar is also extraordinarily high, since they are hiring for "partner material" (or at least VP/Principal material) in contrast to the MF approach of hiring a bunch of associates as execution monkeys and pushing them out.
Correct, people tend to label MF PE as a "low-risk" career path, but as you pointed out it's a huge risk to be pushed back out to the job market after 2 years especially given how tight the mid-level PE job market is these days. And even if you're the lucky few who manage to lateral to a smaller MM PE shop, you'll be at a disadvantage compared to their homegrown associates, who have accumulated greater political capital and trust within the firm.
With that factored in, the risk-adjusted career earnings from joining MF PE as an associate isn't nearly as attractive as people think.
Another aspect barely mentioned on this forum is the quality of learning offered at a career-track UMM vs. that of a 2-year and out MF associate program.
When everyone knows you're getting pushed out after 2 years, you are treated as more of a resource and execution monkey, as opposed to someone they want to nurture as a potential future partner.
On the other hand, career-track UMM roles give associates a lot more opportunities to train their investor mindset, since they are treated as potential future partners.
Coldest take in the book
How does a place like CD&R fit into this? High growth (16bn to 26bn) but arguably reached the fund size where maturity / returns slowing is surely going to take place
Saw on another thread that the incoming associate class size for CD&R's industrials team alone is 13, so their overall associate class size is probably 20+, which is pretty insane. But guess it makes sense since it's a very labor-intensive task to manage underperforming portcos that are going through restructurings. Would imagine most if not all of these 20+ associates will involuntarily get pushed out after their 2 years, since future fund size growth will likely be limited.
Potential future fund size growth matters much more than historical fund size growth, if you're trying to determine promotion runway.
Almost impossible to get promoted at CD&R - know multiple people in the second/third year asso there and it's not pretty. A combo of very large class sizes to begin with, fund size likely plateauing, fund raise cadence probably stretching a bit and some soured bets in a couple of sectors. It's an example of an "overcooked" UMM/MF where if you joined 10 or 15 years ago you're golden (I've heard some eyepopping numbers for even sr principals NW there) but if you joined in the last three you're sort of screwed.
fund plateauing doesn't have much to do with less promotions, its just that their partners are not close to retiring and principal level is stacked so they don't lack any sort of succession pipeline.
With the numbers quoted obviously yes. But I can easily see a scenario where for lots of these the current partners / founders want liquidity. They’ll go through their first succession event which will invariably turn into a knife fight between the next generation of ego maniacs. They’ll sell their stakes at astronomical values to third parties, etc. The benefit for a MF is that most of this has happened or is well underway and you have a much clearer picture of life time earnings.
Second, from a fund raising perspective the MFs are MUCH better and stable. For mid market firms it’s not impossible lots of LPs back out if the key founder leaves a fund, even if it’s phased. The MFs don’t really have that single key man risk as much (which does lead to a much more ruthless culling as said). Also, the MMs are MUCH more perceptive to volatility. One bad fund can screw everything. Even for the large UMMs/new MFs. There are way more bodies littered around the grounds than people like to admit (also because of survivor bias).
I think it’s a toss up and undiligenceable (especially outside-in). Take what you can and hold your nose
Second point isn't true - no one gets excused for consistently poor returns, regardless if you're an old MF or a MM. Just look at Carlyle missing their fundraising target by ~50% and having to restructure their team. Check out this post: The Carlyle Group’s fundraising failure
You also have the likes of TPG / BX / H&F / Apollo all struggling to meet their fundraising targets or see declining fund sizes. You can't bet on playing the "AUM game" and get away with 7% IRRs for multiple funds. Check out this prior thread on how poorly the MFs have performed as of late: MF PE Recent Returns
Blackstone buyout fund closes years late, billions short of initial goals
TPG’s $13 Billion Buyout Fund Target Reflects Tough Market
This makes sense in the short term since the MFs are all focused on expanding their credit / infra / renewables / secondaries / etc strategies, but could lead to the further downfall of their traditional buyout arms if they continue to underperform.
On the first point, it matters very little since you're getting discarded after 2 years at MFs anyway. It doesn't make sense for firms with declining or stagnating fund sizes to promote any associates, or anyone for that matter. Subsequently, you don't really have a clearer picture of lifetime earnings at all, since you'll be pushed back out to the job market in 2 years and face the possibility of exiting PE all together, given how tough the mid-level PE job market has been.
Second point not true at all
Ducimus ipsum quod corporis repellat illo eum. Ratione est sint vitae adipisci. Quidem enim repellendus aut expedita. Amet fugiat quod reprehenderit tempora at adipisci illum.
Deleniti molestias explicabo temporibus vel facere tempora exercitationem. Et esse quidem laborum ab alias veniam voluptate. Aliquam est soluta eos aperiam quae enim voluptatem. Soluta quasi exercitationem facere dolores similique.
Dolores et sint quas eum libero velit. Eveniet possimus minus ducimus nihil placeat sunt alias hic. Quidem quia quibusdam non saepe perferendis et saepe.
A magni animi repudiandae provident reprehenderit est laudantium. Sit quo veritatis nesciunt consequatur consequatur. Sunt molestiae voluptates delectus autem praesentium eligendi quia.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Tempore tenetur voluptatem est ex ullam cupiditate voluptatem. Et dolorem unde in qui. Praesentium ut aliquam id iusto sunt deleniti debitis.
Ipsam neque voluptas quasi ut sint rerum. Sint harum explicabo magni. Suscipit nostrum aut error quae deleniti accusamus nisi.
Voluptas est commodi alias perspiciatis optio cum. Aut minima et hic tenetur veniam hic. Et earum facere sint veniam reprehenderit eligendi et.