IB vs PE, if you only want money
Curious to hear your thoughts on if:
1) going from IB -> PE
or
2) staying in IB and trying to make MD at BB/EB
is better if you don't enjoy/like the work of both, and you just want to maximize income. I've heard opposing views on this. I've read that actually staying in IB would likely yield a higher EV of comp because IB is "easier" to move up in and the work is relatively straightforward.
On the other hand, I think PE clearly has the higher ceiling, so if you're really good you'll make more. But is it really possible to make it to the top ranks of PE funds if you don't enjoy the work? Plus, I heard PE is more stressful?
What are your thoughts?
How many times does this question need to be asked?
bump
♻️
These questions should be banned...
why?
.
bump
.
Use the search, it's been answered plenty of times on here. Short answer is that you're correct, on a risk adjusted basis, banking has a better chance of getting you to a moderate level of wealth (relative to what people on WSO/in finance think is wealthy). We're talking about a low 8 figure type of net wroth by the time you retire. Assuming you're entirely unexceptional, but can just grind things out, end up at a decent bank as an MD, you might make a couple million a year give or take. Problem is that is the cap on your earnings. You're unlikely to get to a point where you're making $10M+/year. Benefit is that, as I said, you can for the most part just work your way up the ladder, and as long as you work hard, are personable and are moderately intelligent, the chances of becoming an MD are pretty high.
PE is a different story. The upside is much higher given how carry works, but in order to get meaningful carry, you actually have to be a good investor. Most folks in PE can get to the VP level just by being good employees, but in order to become a Principal/Partner, you need to find some way to extract value from the companies you buy. You also need to start figuring out how to convince others that you can do this, so fundraising. If you're good at both of the above, the sky is the limit, even for smaller fund managers. I know plenty of MM GPs who have net worths in the 100s of millions, with a generally better lifestyle. Most don't make it here though, because it's much tougher to stand out.
Comes down to how you want to live your life.
Can you elaborate on what finding ways to extract value looks like in practice?
I could, but that's kind of a lazy question. You can easily find more details on this through some research. It basically means can you spot a deal. Can you leverage whatever your firms strategy is, consultants, internal operators, etc and find ways to grow a company you invest in. Maybe it's M&A, maybe it's financial engineering, lowering OPEX, outsourcing talent, do you have a thesis on where a specific industry is headed and you want to push to acquire/invest in certain types of companies, etc. At the end of the day, you need to show an aptitude for making money through PE investing. While it could be argued that some of the above is just following a learned process similar to banking, I can tell you that there's a reason some PE firms are better than others and the devil is in the details on all of the value creation that firms do.
What percent of carry did the GPs have to generate wealth like that? Were they founding members of the fund?
Typically yes, easier to get wealthy if you control all of the carry, especially for a smaller fund. But if you do the math on a mid-size MM fund, maybe it eventually gets to a couple $B in AUM, there's a few founding partners, and then you're the next group down of people, if you run the math on let's say 5% carry on a $750M fund, and then assume you do that on a new fund every 5 years or so, I think you can chart a path to really significant money over time. Again, per the theme of the thread though, it's easy to pencil out how to make money in PE, to actually invest over 20+ years, raise 4/5 funds, all have them perform, etc is way more risk than being a banker, where I'd say most people can make it to an MD type of level with enough persistence.
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