Is PE fucked for our generation
I hope I'm not the only one coming to this realization, but I don't know how much of an upside career PE can provide anyone who started in this industry all the way up to 10 years ago. There are 3 main points I want to address:
- Returns: With the industry becoming as competitive as it currently is, new funds swarming the market, bidding reaching simply stupid values, returns have heavily compressed for everyone. It is not a joke when people say carry is starting to become meaningless. I know multiple people whose DAW that they stayed for an extra 5 years for ended up becoming an extra 100k per year instead of the 500k promised - all of which got committed to the new fund for another 5-7 year shitshow. I don't know people who have become fuck you rich anymore through this career path; it looks like I'm just a highly paid employee at this point. Management fees are the only reliable thing in this market, and the lion's share goes to... management.
- Management: PE as we know it is an industry only really 40 years old - marked by the period of junk bond madness and extreme leverage with no competition, you all know the spiel. What many have you may have picked up on should be the fact that none of these guys have died or left. CEO of a PE firm is an incredibly cushy job, come in once a week, flirt with the IR girls, wine and dine some investor, and pat the analyst on the back for pulling an all-nighter on a deal just for IC not to like how consolidated the industry is... Management has no incentive to retire and give up their outsized pay for the value they contribute, and it leaves 0 upward mobility. You'll come to realize that the MM firm you thought was the uninspected promised land has the same amount of partners as analysts and associates combined, and when you dig deeper you'll look through old presentations and find out that the entire deal teams they used to have are mostly gone (except for the partners) - being churned through and not progressing, or being told there won't be a place for them. The number of VP's I know that all of a sudden fell off the face of the map after years of IC denials due to a lack of political capital is insane, and there is so much mid-level bloat I can't blame even blame the firm. The grind to VP just leads you to a grind to a partner class, all of whom are not near death and have grinded to stay at this point - there is 0 incentive to give up money to cut in a new guy. The fucked up VP hiring market isn't going to change. My own analysis is that it's a natural progression of full upper ranks at every PE firm being settled for a while, and mid-level bloat finally reaching the breaking point.
- Churn: With the emphasis on lean deal teams, it just means cutting junior support. Why do we have so many "partners" staffed under senior partners, who are then working with a deal team consisting of a VP and ASO/AN? All of the actual work ends up falling on the back of one person, who now becomes a punching bag of random analyses, menial tasks, and other bullshit. I started to realize that our hiring has shifted away from smart, creative investors to people who seem like they'd be comfortable dying in the office. If you don't have first-in-last-out ("facetime you fucking pledge") mentality, it is the easiest way to not be well-received by anyone in this industry. I don't even mind not having a life outside work, but facetime when you have nothing cuts into sleep and fucks with productivity - leaving you worse off when work comes your way. Couple that with the fact that even VP's get churned by having to prove that they are worth making a partner when the last partner promote was a decade ago, you see a lot of talent start losing their minds and quitting with nothing lined up.
Just a few thoughts, would love to know if anyone has made similar observations.
Of course the industry became generic and boring. What do you expect? It’s no longer a place to generate alpha and instead is an asset accumulation fee business.
But how else would everyone else in WSO get into the industry with the expectation that with YOE and seniority in a natural progression results in everyone making eight or nine figures?
That stability isn’t the result of chasing returns, it’s from dumbing down, standardizing what’s “good enough” and diluting alpha across a larger capital base to maximize stable fee income.
PE can still make sense if you have alpha. If you aspire to joining the generic established MF UMM LMM firms expect generic outcomes. You don’t get to be Jon Gray by being employee no. 15,000 40 years after the firm is founded.
I agree with your points, but I’m not sure if you’re trying to advocate for the hf life or push us to try something new in PE. If you’re still pushing for the new PE life I’ll have to disagree however. The nature of the industry is the most bland blend of standardization you’ll ever see. Everyone goes to the same schools, to go to the same banks, to go to the same funds, to act the same way, to meet the same people, to adopt the same thesis, to get the same track record… The nature of PE isn’t to chase alpha, it’s to follow the same process. When talking about risk adjusted returns in the space, PE seeks to minimize any risk and see what return comes with it. Capital aggregation is good enough for most firms bc LP’s don’t want more than that. Our CIO loves to flex that he’ll never have a home run deal because to do so would involve risk that he shouldn’t be taking and LP’s park their money in PE to avoid risks. Again, don’t disagree with your points but I don’t think there is room / funding in PE for differentiation and seeking alpha. The only path through is the same well trodden path that is quickly losing all luster.
Little to No alpha in PE, agreed
.
the field became complacent and lazy
younger generation needs to push the older generation out and pull each other up. we've been screwed with housing and gone are the days of the rank & file at banks / PE firms making actually good $. pay is standardized across industry with some firms paying +/- a few dollars, which isn't even enticing enough to lateral.
Your expected to be grateful for the additional $15-20k that you received at bonus time relative to last year - but the reality is that they look at what they paid you last year and then ask themselves what the minimum amount that they can pay you to preserve your shelf life at the firm.
The number of non-value add 50+ year olds in this industry is ridiculous. Every antic for 50+ y/o is political theater. They are simply riding it out a few more years to clear more $mm for their retirement nest egg. There functions can and should be juniorized. Sorry Boomers / older Gen X but you've had your window to earn.
And to be honest, when I eventually have to fire / push out the Boomers / older Gen X, it will be handled the same exact manner as they handled the countless firings of friends for political reasons.
they built those firms and oiled them to be the firms that nowadays you want to work at
do your own thing / be among the first employees in similar funds or firms and then you can also sit collecting fees 20 years down the road, but don't feel entitled to what others have built
Sorry boomer, we WILL cut you out of your own shop
"...gone are the days of the rank & file at banks / PE firms making actually good $."
I appreciate when people say this because it shows to everyone that they have no concept of what a good wage is.
relative to what? Being an accountant? Other corporate "white collar" jobs that require 40hrs per week? They work a fraction of the time so yes we should be compensated more, BUT on a pay-per-hour basis, we prob make MARGINALLY more per hour. Run analysis over PE/banking pay from 80's to present. Compare that with inflation increases / CoL. Also compare to home prices. Compare working conditions of typical corporate job to PE/banking.
pre-2008 banking / PE pay no longer exists, but it seems that the reputation of how much this job pays has persisted despite the trending evidence to the contrary over time. The perception that PE / bankers (especially at the non-senior level) are living large as they were in the 80s and 00s seems to not completely jive with reality. Thread continued: https://www.wallstreetoasis.com/forum/investment-banking/is-the-gap-bet…
You sound like a gold miner who's salty and mad about those that came decades before him that made their fortune from mining gold, failing to realize the gold rush had long ended. Even if you do get rid of those on top, it still doesn't change the fact that PE is on the way down and another industry will replace it. Finance as a whole has been trending downwards since 2008. It's not your fault. Bounce to another field while you still can. PE is not the golden path.
"...it still doesn't change the fact that PE is on the way down and another industry will replace it."
Sure. That also has nothing to do with what I said. An industry can be "on the way down" while still providing better paying jobs than virtually any other field.
You did read what I actually said, right?
I know people are mad at you and there is a truth that you gotta build your own thing, but the other thing about our industry (and why performance has been dogshit in the past few years) is the ridiculous barrier to entry in raising capital. It's just not possible without a large backer, and there is the chicken and egg problem of proving yourself.
Without even going after the 50+ year old boomers who built the firm and are now burning through millions of LP money on stupid shit, just stopping promotion of VPs and Directors based on politics would make a huge difference. At least promote the competent ones.
So stay in IB is the play?
this brings up a good point. at the non-MF, why are there not more mutiny-esque situations. I know of one very well known UMM where the partners pushed the head guy out a while back. Why is there not more collusion at the mid level to say hey either we get X more carry bps or we are walking to raise own fund. People at the top that aren't continuing to earn their fees understand that they can only maintain that position because of people under them. and I get yes it is hard to fundraise and yes there are lots of people who could take your spot (but are there?). The reality is LPs will pull out of the fund if the MPs who sit around let their entire next rung walk because they won't trust them to handle their money well anymore if they can't handle their team
I think you saw this at Silverlake with Egon and his cohort taking over from the founders. You also saw this to a smaller degree at Golden Gate with multiple partners spinning out over the years (Sycamore Partners, Arcline, Percheron, Lone View, etc) given the founders notoriously stingy economics.
the MPs running genstar pushed the guy above out as well. its the nature of the business if the top guy isn't working anymore or treating them fairly. but haven't seen it done in a long time.
And then there is Vista. Some founders are happy when their protégés succeed and are happy to move on. Others hold on for dear life until they’re halfway in the grave
Can’t generalize here, all scenarios occur not infrequently
Given vintages from 2021 onward will not be great, and many won't make carry plenty of people would rather just leave and start their own thing as the upside is significantly higher.
I mean the reality is you need to make the pie bigger to get a slice and the tailwinds that did that regardless are gone so yes it’s way tougher than in the past. The VPs and principals who are stuck are the ones that did their homework well in school and followed instructions but can’t make the pie bigger In a gdp growth industry and so no they won’t be promoted. But if you can because you source or have flawless execution and judgment then you can still rise
But you’re right the outsized growth driven expansion of the pie regardless of individual performance is gone
Everyone (or almost everyone) here understands the pie math by 1-2 years out of school.
It's less that younger entrepreneurial folks can't generate alpha but that you literally can't do an investment if some idiot senior to you is jealous or stupid or both, and you can't do a capital raise to execute that by yourself easily.
This isn't public markets where the feedback loop is extremely small and you can point to the investment that your PM cock blocked you on as being a monster 3 to 6 months out.
Don’t agree - the best in class mid level ppl at the firm are originating deals with angles and it’s pretty hard to not spend time on those as a firm
Do you guys have access to pitchbook? Even the blue chip names everyone here worships have returns that are quickly compressing.
The future of PE is finding sucker retail money to charge 2/20 to, maybe more
who's funding all these PE funds now though? I personally would rather keep my money in QQQ. so I don't really get where all the money comes from.
Huge push into retail via secondaries. Some of the retail secondary products that I have seen are jokes... PE risk and illiquidity for sub-10% returns. Retail investors don't understand shit and think oh nice, I've got a "debt"-like asset backed by PE equity stakes (I don't think they even realise how effing ridiculous this is to call this "debt") paying me 8% a year.
The other answer is that they're paying even junior IR folks ridiculous amounts of money, when sales is not how investing is supposed to make the firm money. It's basically an admission that they're fucked.
This is why I turned down a MM PE offer for a lower paying series A role but I foresee greater opportunity to be in environments where great economic value is being created that I can capture. One of my good friend is at SpaceX in supply chain, opted for stock instead of salary and at 29 as of a couple days ago is worth 3mn liquid (they’ll buy back shares). Need to go to where the innovation and economic value is being created.
What type of role does he do and when did he join?
How are you finding these roles? I'm not in the US at the moment and I think that severely limits my corporate options, start ups are even worse. Director level strategy / M&A / BD jobs at even blue chip corporates paying like an (non-finance) associate in the US.
Find it fascinating that most people have not come to this realization before. Your chances of making partner or life changing carry at an UMM fund were not great in 2016-19 either.
I’m heading a PE-owned business, so not saying this as a complete outsider. The first reason you don’t see many mutiny situations is incentives: the bench is deep and the platform is the leverage. Most “deal" or "project mgmt” skills are more replaceable than people want to admit. There are plenty of competent, diligent people who can fill a seat and be productive within 6-9 months.
The second reason people don’t push back is outside options. Most don’t have the operational experience to confidently run a company, and don’t have the network to raise enough capital to go start their own fund. So the rational move is to stay. You keep collecting comp, and do a lot of bullshit work, unfortunately. You probably won’t get rich on that path, but you’ll be very well-off.
Agree with everything you've said. PE is becoming like asset management - highly paid corporate work w/ substantial upside gone (at least for non-GP owners).
This disillusions the people in PE that were sold the dream of deal-making glory, 5x funds w/ incredible carry, and just a generally more entrepreneurial industry. They've also watched the prior generation (I would say anyone w/ partner economics starting in 2013 or earlier) get insanely rich.
If this continues, the folks that join and stay at the established funds will continue leaning further towards 'corporate' personality types and away from the types of people who started this industry.
Where I still see folks do well is the ones that love + have a talent for doing deals - there will always be a place for this skillset (often at their own funds).
Fair point. Agree.
PE is asset management at the end of the day. Fee-based cap allocation + some operating involvement.
If I have one hot take for the next ten years it is that private markets will underperform smallcap public market returns net of fees. There's too much competition. Where's the value add for PE when everyone's doing deals? Even small strategics have ex-bankers and PE guys doing rollups. You can get LMM PE exposure a lot cheaper by just buying shares in a serial acquiring strategic.
I've said it here and to others for years. The insanely wealthy people in PE made their money from owning their firms and not from carry. The younger generation on here assumed it was the carry making Robert Smith a multi billionaire, nope it was owning his firm and raising $100b in assets at 2% fees. SS is the epitome of this, build a firm (impossible these days to build BX all over again) and maybe you can have a 9/10 figure NW but working your way up the ranks will not make you wealthy.
Everything from housing to jobs to the environment is fucked for our generation. Thank the boomers.
getting paid $350K+ with 2 years of work experience is better than 99% of your peers, flying business class, dining at fancy places, going on company wide retreats, renting fancy apartments... just ride it out until partners hit their mandatory 60 year old retirement age
I think that’s the flip side, it’s always going to be a highly paid job if you’re willing to grind. The problem is that some people were sold a bill of goods re generational wealth that’s just not true anymore.
Sounds good but if you're grinding out ~70hrs per week on avg that's only doable for so long. Lot of money for a mid-20s kid but I doubt that kid wants to sacrifice his entire 20s without memorable experiences and increasingly lacking time to date / marry
you only grind ~70+ hrs per week during associate days, past VP its more like ~55hrs and schedule is way more predictable, plus summers are chill; i've 30 now and all my friends in PE and their principals are all married or in relationship
The industry will remain in the muck until real interest rates decline by another 200bps or more. A generic (UNHW/corp/institutional) investor can borrow foreign currencies anywhere from 1-3% and leverage up to buy risk free govvies for a leveraged (and relatively risk free) yield of 7-8%, against a PE industry delivering [10-12%] returns in exchange for locking your money up for 5-10 years - "the juice is not worth the squeeze". RIRs need to come down for leveraged yields to be around 5% and at the same time raising PE returns to 15%+, that delta gets the model going again. Unfortunately, it will be darker prior to "darkest before dawn".
“Oh mighty Fed, we pray to you to fix our industry’s problems. It’s not us; it’s interest rates.”
The 10yr UST is ~4.15%, YoY inflation was ~3% and the Fed’s long term inflation target is 2%, so real interest rates are currently 1-2%. You want real interest rates to decline a further 2% so back to zero or less? How does that make any sense taken in context of the last 5,000 years of interest rates? Seems insane and incredibly myopic.
You don’t need low interest rates to make good investments; you need cheap prices, and cheap prices are actually found in higher interest rate environments. Lower interest rates will only bail out or improve the exit outlook for the biz that the pe firm overpaid for previously. However, that pe firm likely overpaid (at least in part and I would argue in large part) due to low interest rates. Lower interest rates are not the solution. The solution is better investment decision making.
This felt like a personal attack so let me just gently reply that I'm not advocating for rate cuts, I'm merely stating an observation that I don't see any other way for the private capital industry to return to the glory days unless we go back to ZIRP. The alternative is for the industry to shrink massively (across Priv Credit / PE / PERE etc). I'm stating that this purely as an intellectual exercise, I may admittedly have a preference for a return to ZIRP, but don't let my preference take away from my assertion that there are very few paths forward for the industry from where it is today that doesn't end in one of the two ways I mentioned above.
At present the entire private capital industry is more or less standing still, institutional money is tapped out in the sense of willingness to further deploy, "zombie" funds are just waiting around. Creative types are utilizing CVs. I 100% agree with your "Captain Obvious" statements e.g. "you need cheap prices", "the solution is better investment decision making". Who would've thunk that buying low and selling high is the winning formula as opposed to the other way around? By ruling out lower interest rates to get the industry going again, you're effectively making an argument for most firms to exit the industry / fire sale assets and leave only the KKRs / BXs and Apollos ruling the roost (which, again, is one of the two outcomes I posited).
Perhaps you'd like to share with us what, to your mind, is the way to get the private capital industry going again from where it is today? How does private capital "make better investment decisions" if there are no sellers selling for "cheap prices"? For the firms with dry powder that have been waiting to deploy for a few years now but can't find "assets at good prices" - since sellers can extend and pretend / get creative with CVs - how do you justify your reason for existence as a GP?
People also bought a lot of nonsense, at nonsense prices, and while artifically compressing the cost of capital for everything else in the world helps, I don't know how it means that PE is not the problem. I think the LPs know too now.
I really wonder if there's any room for innovation for Zoomers like the first private equity wave was
There's always room for innovation. Since the beginning of civilisation
Yes mostly. New trend is leaving a failing fund and becoming an IS
"I don't know how much of an upside career PE can provide anyone who started in this industry all the way up to 10 years ago..."
(1) Well... yeah. This is what happens when an industry develops. The first ones in have the ability to make billions by doing not much more than "showing up." As time progresses, you have to put in more and more work to make that type of money. There are still plenty of ways to make generational wealth in PE. It is by no means as easy as it was 10+ years ago, that's for sure.
(2) This is also a natural consequence of a few firms consolidating most of the industry. There is a reason why most of the billionaires in PE are ones who started their own firms or were very early employees at what are now the largest firms.
There is still a tremendous opportunity to make the Kravis/Schwarzman/etc type wealth. There are still plenty of people of that talent level who can build funds like that. HOWEVER, because of how the industry consolidated, they are more likely to be found at one of the MF or UMM than their own funds. If you look at where the real opportunity in any industry comes from, it almost always comes from being very early at a large growth opportunity. Those large growth opportunities are still there in PE; the people who could be the next Kravis/Harris/Bravo/etc are just choosing an "easier" lower-risk path.
What doesn't get discussed as often is that, while true in some sense, this sentiment is also as much about a form of selection bias as it is anything else.
The industry is consolidating so less opportunity to create generational wealth. You also need many people to retire to allow seats and carry to open up for the next generation. Think about it this way, if you spent the last 20 years grinding in PE, why would you leave? The answer is until you're pushed out or "have enough" you probably won't leave. What happens next? The talent that was first drawn to PE will go elsewhere. Find the elsewhere.
The golden handcuffs.
Yeah most people are jumping into private credit these days.
Yes these are the end times. That’s why they call it Gen Z.
Are Gen Alpha the saviours then? lol
Yes, Alpha will be the great innovators, a new beginning you could say, leveraging new technologies that are unfathomable today and reinventing the business to capture tremendous market alpha. Gen Beta will go to school to memorize the technicals and get the job, only to find that it’s too late and there’s only market beta left. They will resolve themselves to complaining on finance forums rather than thinking creatively as entrepreneurs. It gets really weird at Gen Gamma, but my crystal ball is a little foggy this morning. Just know this is a cyclical business and there will be ups and downs. Chasing the thing that is hot today may be cold tomorrow, and, conversely, today’s Z might be tomorrow’s A. So go get em Z, there are still rocks to be uncovered. Skate to where the puck is going, not to where it is.
Stimulating read. Are any of the PE firms seeing partners work past 60?
No, they don't work. But they still soak up dozens of carry percentage points.
Lol
Just the start for Independent Sponsor Boom
I'm 25 years old and just made $450k for the year, while taking on 0 risk.
If this is what fucked feels like, I love it
Keep on keeping on then! PE is a great job if your cool w the status quo.
But wait until you’re 35 and grinding to push deals though IC, there’s a managing partner class that takes 90% of the carry and flying around on PJs, they’re dangling the partner carrot in front of you but always coming up w some excuse for you’re not quite there.
Two more years and I’m financially set: ~$1M net worth in my mid-20s. Anything beyond that is gravy.
When the majority of my comp is cash, speculating on the long-term durability of an asset class just isn’t necessary. On top of that, PE gives you near-total career optionality... HF, VC, corp dev, corp strat, FP&A, etc.
Maybe this thread is meant for VPs and Principals but as an associate, PE is amazing
You sound a bit jaded the way I was before I left my firm. (Real estate development, not PE though). If I were you, I would focus on starting your own thing. Either buying a small business or starting a small fund.
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exactly, invest the PE money and you will be so set by the time you reach 30, and after that who cares, AI will change the world so much anyways.
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You know PE isn’t as cool as it used to be because it has all the markers of a mature industry:
Happens to every asset class but when the 3.5 GPA can break-in, it’s over. Means there’s too much capacity.
Who knows what the next alpha bucket for private alternatives is going to be (maybe dystopian rental housing). We have squeezed PE dry and the economics are tied up in extremely wealthy founders of which many have decided to now take their firms public. What I find especially funny is the boring business or search fund guys. "so you are buying a business and holding onto it forever?" there is no value add from these buy and hold forever guys and frankly why would an owner even sell if you could just keep owning the simple boring business that runs itself. Sorry for the rant I just keep seeing my MBA class devolve into these types.
There's a lot of advantages to buy and hold that makes more sense for the average search fund founder. If you buy a "boring" stable asset that generates 200-300K a year in EBITDA, it provides a "solid living" while you can slowly scale it up to 500-600k a year with no timeline / pressure and capital gains tax on a disposal. If we're being honest, truly great businesses take time to build not 5-7 years. Sometimes a breakthrough occurs in 20 years. Also a business you hold for a long time you can build a sustainable competitive knowledge through connections / industry knowledge which takes decades to build, also a you can pass onto the next generation and set up your kids for long term success.
Most true "wealth" you see today took decades and generations to build, not a 7 year buy and flip. Social media and financial engineering skewed people's understanding of the real world. Fast money is usually the exception, not the norm.
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