Seeking advice/feedback from those with more life experience than I have.
Senior associate at a LMM PE firm. Recently I’ve grown disillusioned with the PE career path. What once seemed like a crystal clear, *relatively* low-risk path to financial success no longer seems to be the case. General tenor of this website and conversations with friends at other firms is: PE is challenged by an increasingly competitive landscape of investors (particularly in the LMM), which in turn is driving longer hold periods, underwhelming exits, and fewer carry events (if any). Anecdotally I know of several others who have been in the industry 8-10 years and have yet to see a carry event, and in this current market have to squint to see one in the next few years. Additionally, unless the state of the industry miraculously changes and firms begin returning capital, processes to kick off new fund raises will be DOA. These circumstances are guiding me to the (potentially naive) view that the carrot at the end of the stick is no longer what it once was and will likely never return to where it was 5-10 years ago.
With all of this being said: am I foolish to consider pivoting away from the industry? As plenty of others on this site have admitted, it’s quite scary to consider leaving an industry I’ve worked hard to break into. However, my general belief is using my PE background and the optionality it affords me to pursue something I might find more purposeful (and potentially just as financially rewarding) is just as valuable as the coveted PE role itself.
I’m curious to hear from those who have either a) had similar thoughts of making the jump, but decided against it, or b) decided to make the switch to a new industry. For those who decided to stay put: what (besides general comfort with sticking to the status quo) convinced you that you remain on the path that is right for you? For those who decided to make the jump: what ultimately gave you the kick you needed to make the switch, and how have you generally liked it since?
I’m aware the grass is not always greener, but I have a growing belief that if I do my diligence and discover something I find genuinely interesting/something that gives me that “fire in the belly” feeling, it would end up being a much better sacrifice:reward ratio than the one I currently have.
No - it's not only not crazy, it's probably the choice what a cold hard rational analysis would suggest (plug it into a model and do a scenario analysis)
Behavioral economics 101 - don't fall prey to the Sunk Cost fallacy - what you invested in the past has no bearing on future decision making
A few rational reasons to stay - (1) your fund is relatively safe (recent raise - capital locked in; actual performance - DPI - is strong) AND you can conservatively assess that it will be able to raise bigger funds going forward; (2) you really have a strong-ish interest in investing - you'd do this job even if the NPV of the compensation / cost of the hours / lifestyle over the long-term is less than what you can achieve elsewhere; (3) your financial condition makes it impossible to leave this job in the short term (like if you have a wife/kids/parents that are literally dependent on you maintaining a job)
And to state the obvious - the choices available aren't (1) put your head down and hope for the best or (2) quit and hope for the best. Obviously the best answer in almost all cases is to continue doing the job but start reflecting (as you are doing), doing your due diligence, and ultimately interview / apply for other types of opportunities in which case what you have is a call option to make a decision based on more information
Sound advice. Thanks for sharing
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You aren’t wrong. PE is a mature industry now and the chances of making serious life changing money have dwindled considerably.
We study all these companies that were thriving in the 1980s e.g IBM, Kodak etc that ultimately failed because the conditions that lead to their outperformance changed but then don’t apply that to our own industry. Have the conditions that allowed PE to thrive ultimately changed? I’d say yes (interest rates, competition, maturity of the industry, increased tech disruption, deglobalisation.) it’s very easy to look away from this and not be honest with oneself (“sunk cost fallacy” per the above), but ultimately on the balance the probabilities I think that PEs best times are behind it.
now, if it were a 9-5 job then the risk reward is probably worth it. However, as times get tougher, promotions get tougher, backstabbing increases, competition for carry increases etc. so perversely the industry becomes an even more difficult place to work.
so how do you ultimately make that calculation? As a Senior A you can still pivot. The principals/partners that have been grinding for 15 years and still haven’t seen a big carry cheque have no other choice.
Jeff bezos: “ if you try to lean away from the future, the future is always going to win”
AB
good insights and wanted to follow up with a question. Someone who has a Banking/PE-background and wants to stay in private markets investing, what would you recommend pivoting into? Anything outside of private markets that you would recommend?
Thanks for sharing
Thanks for your insights, may I ask what would you consider as the job with growth for the future?
pension fund / endowment
What excites you about PE? Deals? Check IB/CD. Investing? Co-invest/FoF/HF etc. Operating? Startup/entrepreneur/etc. No clue? Go to B School and figure it out.
The beauty of PE is that you can do whatever you want and be successful after it. It is up to you to decide what you love doing and make a life out of it.
I am on the same path and have done much soul searching before I decided
What did you decide on?
Something not listed above
Duplicate
What are you solving for? Money? Intellectual stimulation? Meaning? Life style? Stability?
I think what you’ll find is that almost every path will optimize for 1 maybe 2 of the above factors.
The trouble a lot of people fall into is they want to optimize for every single dimension all at once and that doesn’t really exist anywhere. Or they don’t really know themselves well enough to understand what they are optimizing for so they just crowdsource their values and priorities from high achievers within their immediate proximity that their perceive as having it all. Spoiler: those people themselves are most likely very disillusioned and aren’t living the dream in the way you think they are.
In PE, you’re really just optimizing for money. In that regard, you’re fathoms ahead of any other career path. My peers that work in big tech, banking, consulting, corp, medicine, law etc have an annual income that is typically 5-10 weeks of comp for me. That’s a massive delta. If that’s unimportant to you, then you have your answer. If it is principally important, than you’ll have a very hard time going to the greener lawn across the street.
Pick your must have and your nice to have and see what lines up best. Along the way, you’ll realize that 2 other factors line up really poorly. That’s the price you have to pay to get your must have and nice to have. If you’re unwilling to pay that price, that may not be the best path for you and you should repeat the exercise with the next best option.
You're telling me your friends in those careers are making 1/5 to 1/10 your annual compensation? Sorry can you explain the math? Even if you include your vesting carry (which is a separate debate), I don't get how someone in big law or big tech w/ RSUs can make that fraction of your comp?
I think taking a step back from that point - some of those other careers you named are also very remunerative and some can potentially provide what OP is looking for.
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