Is Big always Better?
So I know which ones are considered the mega funds, but what's below the mega fund tier? Middle market?
What is the amount of AUM that you would classify under each tier?
And is the biggest always better?
It's the magician
Biggest is most definitely not always better. There are a ton of college sophomores that will get on this board and tell you that if you're not working at KKR, you might as well be working at McDonalds. The truth is that a "middle market" PE fund might be a lot better suited for some people - it depends on what you want. A quick comparison
Megafunds: Top-tier comp, prestige (which I argue hardly matters once you leave college), WSJ front page deals, usually terrible banking-esque hours, often limited scope of work (modeling all day), not as much senior exposure.
Middle Market: Slightly reduced comp (but what's an extra couple grand at that level anyway), sometimes less recognizable companies (but not always), much better hours (60/week, no weekends usually), more responsibility (site visits, portfolio company coverage), more senior exposure (daily interaction).
So it really just depends on what you want out of it.
So in summary - Middle Market funds typically will give you a better experience (generalizing here), but you trade off a bit of comp and some prestige.
I don't think big funds necessarily give a worse experience, unless by experience you just mean hours. I have a couple friends at megafunds (Blackstone, TPG) and they get good, interesting work. They do work a lot though.
MM is deal size not Fund Size. A Mega Fund is one that has both high AUM and works on Mega deals.
There are some very large funds by AUM that do exclusively MM deals. These funds can sometimes under perform as they have to do too many deals and start doing lower quality ones just to put capital to work.
Bigger is not necessarily better in terms of AUM or deal size. However, there is a minimum that you want to look for. A first fund should be at least 3 or 4 times the expected deal size. This means that if you are looking at a lower MM PE shop with one fund outstanding that looks at 50-100MM EV companies, then you should expect a 200MM fund (in order to be legit). This will allow a fund, depending on leverage, to do between 6-8 deals over the 3 year commitment period (or about 2 a year).
Bigger is more prestigious, and big lean firms can pay lots of carry, but that doesn't mean that in a 4 person 200MM fund you won't get mad bank.
^ True. I'm looking at around 1-5 Billion AUM and the people make good money and love their work. I would think that combination is rare to find in the world.
thanks for the comments guys...
Is a 1-10B AUM considered a "big" fund. Or is that normal?
It depends on what you are personally looking for in terms of cutlure as well. I interned at a small MM PE firm and the hours were very good (ie. 9-7) and the comp was lower but still pretty good. That would be an obvious choice for someone who is not so worried about huger bonuses but rather really wants to do PE with a regular life. There was one partner who came from ML and he said at some point he just decided it was not worth it to be pulling those hours.
All a matter of preference.
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