Is IB Really a Pre-Req for PE?
I have a great gig lined up for my penultimate system at a well-known firm in PE/PC valuations (The group sits within a larger investment bank [firm is known for its strong prime brokerage and strong sponsor connections], but is hired by PE/PC/HF/VC firms to value assets). I could re-recruit for full time IB, but I believe this experience will provide more exposure to the buyside and built more skills useful for the buy-side than IB.
Clearly IB is the most common path to PE investment professional roles, but will I have a much harder time recruiting for associate level PE coming from PE valuations? I don't really care about MF PE (the people I have meet in MF PE (Apollo and KKR) have been... less than nice, but that is with a very small sample size), honestly like the work that those in LMM and FIG PE (interned in PE my sophomore year and saw how LMM / FIG PE worked).
I really like the people I will be working with, the pay is nice ($125-130 gross for first year comp), I find the work interesting, the hours are around 60-65 (which allows me to study for CFA/MBA), and the firm is growing in quality and brand. I just want to make such that I am not going to be shooting myself in the foot. Thoughts?
That is great to hear. I am in a bit of an IB echo-chamber at school where most of my economics friends are "IB or bust", so it is good to hear others thoughts on it. I think an PE Val. -> MBA plus CFA -> MM PE should work.
Gonna level set with you man, valuations -> MBA + CFA is an extremely low likelihood path to a private equity deal team. For one, the CFA is completely irrelevant for private equity (trust me, I passed two levels of it); it’ll give you some nice conceptual background for valuation, but you’ll spend countless hours memorizing things that you’ll never need to think of again. Impact to your resume is minimal at best (doesn’t hurt, but the juice is 100% not worth the squeeze).
Valuations also has almost zero overlap with what you actually do in private equity. Sure, there will be a handful of people out there that have done it, but it will be a tough road. Post-MBA positions are also pretty competitive due to the small number of open spots and the plethora of candidates with pre-MBA PE experience.
IB definitely isn’t a must, but the specific path you laid out is extraordinarily unlikely. If you’re comfortable staying in valuations or changing careers post-MBA, then no problem, but if you want to move to the transactional side I’d recommend getting into something with more direct overlap
So is there a path forward that leads to PE which doesn't involve IB? Or is IB a pre req?
Are you based in France? I believe most of the responses you've gotten are US-specific.
Another US-specific response to your question - the only way to land PE is through IB, MBB consulting, or PE analyst programs, which are extremely competitive and not realistic unless you're a top student at an Ivy. Is there a reason you're so adamant on avoiding IB? If you don't think you'd be competitive for IB, you probably won't be competitive for PE down the line. If you're not willing to do the work for IB, you won't be able to handle to workload in PE down the line. Probably something to think about.
95%+ of PE associates will come from investment banking, consulting, or private equity analyst programs. A smattering of the outliers will come from adjacent paths in finance like equity research, corporate development, corporate banking, or maybe hedge funds. A lucky few make their way in from things like Big 4 FDD/TAS, corporate strategy, or entrepreneurship. If you keep looking you’ll turn up a handful from even more unlikely backgrounds with interesting stories and/or connections (I’ve seen sports, political consultants, foreign policy analysts… but extraordinarily rare).
Typically the smaller the fund, the more likely they are to take people from alternative backgrounds. There are plenty of people who don’t follow the “path”, but there’s no secret easy backdoor - most shops want to hire bankers, sometimes consultants. Some outliers end up here, but it’s all survivorship bias.
Think of it like anything else with a defined pipeline - want to play in the NFL? You should probably play college football, preferably at a school named Alabama or Ohio State. Can you find someone in the pros who came from a D3 school, a baseball background, a foreign expansion league, a Philadelphia bartender? Sure, but you wouldn’t want to start there if you already know your end goal
Not even a little bit. It's certainly the most direct route, but it's definitely not a pre-req.
I understand the cognitive dissonance you have going (I had the same). Alternative asset valuation will NEVER in a million years give you a better path or skillset to private equity. The sooner you realize this the better it will be for you.
What are some common exit ops, aside from other valuation roles?
The big PE skill set is being able to source and execute deals. I’d ask yourself if valuations does that, since being able to value a company is a necessary, but not sufficient, part of being in PE. IB is nice because it generally touches on most qualities needed for PE. It can be done without IB, but it’s less straightforward
“Can I be a doctor without going to med school? I feel my global health part time MPA is better anyway”
These questions are getting asinine and OP just wants confirmation of something that isn’t true
A similar team values some of our investments. I review / sign off on their valuations (i.e. are we happy to adopt them or are we challenging them). This isn't a better role than IB and you wont gain more exposure to the buyside / skills use for a buyside role.
I'm not 100% sure what these teams do and it may differ by company, but the reports I review are relatively light touch. It's not a full blown DCF / comparables / LBO analysis type football field you'll do as an IB analyst, and they aren't running complicated sellside models with management or running the model for a sponsor on a buyside transaction. It's a volume business, the more valuations you get through the more fees come in, and firms wont hire a group which consistently challenges their valuations.
Similarly, you'll also miss out on learning how a sellside / buyside process runs, and what sponsors are looking for in their DD. During these processes, IB analysts will be engaging with the investment professionals in these firms. In a valuations team, you'll most likely be engaging with the finance or valuation functions of the fund. I rarely speak to my valuation function, and I never speak to external valuers. You'd be well positioned to join our valuations team, but you most likely wouldn't even make it onto our short list for an investment associate as you've no transaction experience.
If you want an alternative for IB go with strategy consulting. Following this, Big 4 TAS or corporate development.
To add another alternative: private credit gets looks from lmm/mm PE shops
Know somebody who did this and then moved into MF. She really expressed the non-necessity to work in IB before PE, but I don't think anyone where I went to school was sold on that idea.
MidMarketMcLovin said it well. I worked in portfolio valuation at a major Val shop and it’s a volume game. You aren’t really challenged to learn the subject companies’ operations, industry economic factors, etc. You are mostly just plugging and chugging into a basic template and learn very little about business or transactions. You are also expected to bend your assumptions to get the client’s value within your range. You’ll hear managers say stuff like “Let’s just add 10% to the discount rate” to keep the client happy. It’s hard to feel proud of your work when you just do whatever the client wants anyway.
That being said, I was able to exit after 1 year into a PE analyst role. You will not go from portfolio valuation to PE associate. Analyst level is possible, and I’m happy I made the move.
Valuations to PE is a very unlikely path. You can skip IB if you go to a legit PE analyst program or MBB consulting, but IB will open the most doors for you.
CFA is useless in IB/PE, only AM cares about it. Equivalent to getting a commercial drivers' license to beef up your profile as an Uber driver. Not worth the time if PE is your intended path forward.
Also - LMM PE is not necessarily the promised land of good comp and great hours. Lots of random LMMs grind out terrible hours, they just fly under the radar being so small - hard to know that before joining unless you have a close friend already working there. Just something to flag if you're looking for decent WLB.
UK perspective here, I've dealt with a couple of small PE firms and noticed that whilst none of the investment teams had IB backgrounds, they all shared the same background; at one firm they were all ACA qualified Chartered accountants from the Big 4 (most likely with TAS experience) and at the other firm they had all worked for the same MBB company.
So no IB isn't 100% a requisite but these firms clearly had their own preferred background for their investment teams, and I should clarify these were tiny firms i.e. <50 investment staff
Transitioned to PE as an associate from ER and no IB background so its possible but much less likely than traditional IB>PE pipeline.
Anyone can break into PE. But it’s just easier from IB.
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