Is Joining PE still worth it?
Currently a first year analyst at a BB in a mid-tier group - wondering if recruiting for PE is still worth it. Seems like the industry is on a downward trajectory and overall people aren’t too happy. If you all were starting your IB stints right now, would you still go the PE route or pursue something else? Thanks in advance for the insights!
No one can answer that but you. Seems like there are a couple recent threads on the whole "PE crisis" and people talk about the prospect of the industry (and their thoughts) in-depth. Its up to you to figure out what you agree/disagree with and choose your path
Yeah mate he’s asking for advice and opinions so he can try to do that
Yeah and he could spend 5 seconds Googling this and find this topic has been discussed multiple times in recent years, don't think much shit has changed since then. Idk how many more opinions or advice one needs. Not like their situation is unique or special
https://www.wallstreetoasis.com/forum/private-equity/is-pe-worth-it-1 (this one almost has the exact same title)
https://www.wallstreetoasis.com/forum/private-equity/does-anyone-like-pe
https://www.wallstreetoasis.com/forum/private-equity/is-pe-fucked-for-o…
Worth it if you're aiming for 9 digits. Depends on how greedy you are and what kind of lifestyle you want. If you want to be a rockstar, staying in IB won't get you there. If you want an upper middle class lifestyle with higher certainty and less volatility, IB probably better. Both can get you to financial independence, but in this market, IB arguably faster still.
Not sure you're getting to 9 figures in PE for someone starting now (even if you're a rockstar) unless you start your own firm.. but you can say that about other industries (eg start a tech company, services rollup, etc).
Depends what age. Compounding low to mid 7 figure comp into 9 figure nw in your 50s to early 60s isn’t crazy if you’re relatively frugal.
Broadly agree. Having been in PE, anyone would tell you hitting 9 figures is highly unlikely. But, you will likely NEVER get there if you stay in IB (unless you become the next Jamie Dimon or something).
A partner in a MF will at least have a chance to get there, but an IB MD will never (although maybe Evercore PCA SMDs can if this market persists).
That was the point I was trying to make.
This is one of the most insane takes in WSO, which is saying a lot. You will not get to any kind of inflation-adjusted 9 figures in PE unless you start your own thing or join a young fund that grows to becoming a large-cap fund. The math just doesn't math. You could get to 9 figures in PE at some point if inflation goes up enough, but outside of that 9 figure type wealth typically requires you starting your own thing or at least getting in on the ground floor. People at the established firms starting now or in the past 10 years or so aren't getting there.
9 figures is 100M, not 1B. It is possible in PE without raising your own fund, but pretty much everyone who does it could also raise their own smaller fund if they wanted.
I knew I wanted to do PE since Sophomore year of college. Now that I’m doing it, I’m planning to leave. I see my mid levels grinding like crazy for limited upside, and it’s a race to the bottom to see who can sacrifice the most to get work to the principals faster (and none of them are getting any carry lol).
same lol what do u plan to do?
you and everyone else bud. you gotta have heart to do this long-term. me? i've been wanting to do this since 8th grade... love this shit. die for this shit. it wont make or break me. i will make or break it.
Not worth it to the point to sacrifice anything else to get into PE. But if you get the chance, then go for it.
Despite the challenges at the upper levels (limited room for promotions given underperforming businesses and lower-than-expected carry), PE is still a great training ground assuming you want to do something investing/business related. If none of that interests you and you're just doing it for the money/"Prestige", then you shouldn't do it under any scenario.
It’s worth it if you are going to be an m&a person or investor because it’s great training. I’m old but if I were graduating right now I would do a CS/math PHD and try to build god
Many people here who are following / have followed the hivemind will be mad about this, but no.
Generally, it’s the typical cycle: once something becomes popular enough that everyone wants in, a lot of the easy gains have already been made. Want some rabdom arguments?
I. Competition — There are so many PE firms competing in the market that prices for attractive assets get bid up, which obviously affects returns. This was already a problem years ago. Paying high entry multiples is part of why some funds are struggling to deliver attractive returns now.
II. Promotions — Hang around WSO for a bit and look at what people on your LinkedIn are actually doing. The path to a senior role in PE looks pretty crowded. Getting an associate seat is one thing; staying long enough to get meaningful economics is another.
III. Carry — Carry isn’t guaranteed, and slow exits mean you might wait years to see any money. Depending on fund performance, it could also end up being worth much less than you expected. Without it, the whole calculation around long-term compensation looks very different. You might as well stay in banking if maximizing compensation is the goal, rather than betting everything on potential carry.
IV. Interest rates — The low-rate environment helped PE returns massively. I wouldn’t count on those financing conditions returning anytime soon.
If you just want to spend a few years there, do it. Build your skill set and then pursue a different path. But I’m sick of so many randoms saying they want to work in PE because they heard about it somewhere and think they’re going to get rich that way.
I understand this is a wild concept for the average WSO hardo propsect or analyst who have never learned how to think for themselves, but some people do find enjoyment in M&A, being an investor, talking to companies, etc. If that interests you, PE still remains the best training ground. I am a big proponent of doing something that is a mixture of what your good at, what you enjoy doing, and what can earn you a living. For some people PE is that or the best way to get to where they want to go, and therefore a great career to get into. It is a pretty terrible place to have a career if you hate the idea of the three things I mentioned as PE is a very long-term industry that is cyclical by it's very nature due to ties to interest rates / debt financing.
^ This
But how much of working in PE is actually about doing what you would generally think an “investor” does and from what seniority does that start?
I think being an investor is genuinely intellectually stimulating and interesting. But for most PE houses I saw, there were little “real” investing decision made down the org. Its more just a giant bunch of process management and you are bidding on the same set of limited assets in a sector/country combination that the majority of other sponsors bid for when they go on sale.
I mean the day and age of the stock picker/fundamental investor is long gone .. but when I was in college more than 10 years ago I always had this awe for the macro/fundamental investors. Evaluating a sector, company and developing a sharp thesis.
But that does not happen at the majority of PE funds. Literally hundreds of houses are doing the same stuff and are forced to bid on whatever comes to market.
PE has just become very crowded which lowers the opportunity for promotion, drives down long-term returns, makes fundraising more difficult, and a plethora of other negative headwinds. In order to make partner nowadays, you need to pick the right firm and the right time. If you entered the industry 20 years ago, you just rode the wave to partner. Not impossible to become partner, but signficantly more difficult today. Also, I think partner economics will continue to get squeezed.
It's still worth it because it still has pedigree, very outsized compensation and 10 years of experience condensed into 2-3 years at times.
Is it for everyone? Absolutely not. Like a lot of things in life, much of it depends on who you're working for and who you're working with. "Comp maxxing" falls by the wayside as you mature.
It depends on what you want to do with your life. If all you are trying to do is maximize comp and minimize effort there are multiple avenues outside of either that provide a better ratio. If you don't like the job, you will never become one of the top people in the industry, and you will never realize the comp you were hoping for.
I think people a lot of people that post on these forums don't actually understand the economics of the asset class. It can be true that the era of the median fund returning >2.5x can be over AND also be true that the economics for GPs are incredibly attractive.
Let's take a hypothetical example of a $10bn fund that posts 2x gross. That is going to translate to probably ~1.7x net / low teens IRR to LPs. Not great, not terrible, and realistically that is probably in the vicinity of what this vintage of funds (meaning 25 / 26, not 20-22 which will be worse) is most likely to post on average.
That $10bn 2x fund is going to generate ~$2bn of carry. Let's assume there are 50 investors at that fund that receive carry (VPs and above). That is, on average, ~$40m per investor. Now obviously it is not split evenly--some people are going to be way below that (~$2-6m) and some way above that (~$100-200m). But on a single fund it should be clear that there are a lot of dollars flowing around for a relatively small number of people.
Put on top of that the fee income (which yes, only flows to the top couple people) and the fact that fund cycles are often 3-4 years. If you make your way into the top ~15 in these orgs and stay for ~15 years, you could have economics in 3-5 funds where in the last couple funds you have a sizable allocation. Not crazy if you are fortunate enough to be one of those people to find your way to $100m+ (and for someone who falls short but rises a decent way to end up with $25-50).
The challenge is that there aren't a ton of these seats and in a lot of orgs you have a big generational tax where there are some permanent economics that have been sucked out of the system. So some firms do structurally have a lot more upside than others.
All that said, on net, this continues to be an industry that generates an enormous amount of fees per number of employees (and that will not change even with some fee compression). Era of crazy 5x+ funds over? Yes. Era of people getting rich working at PE firms over? Certainly not
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