LMM PE UK
Keen to hear thoughts and experiences from those who've spent time in the LMM in UK (less than £500m), and what it's like from those who have first-hand exp. I get the sense from speaking to people that hours are generally very good, pay is strong and could be argued as one of the best roles in finance today. How true is this? Anyone care to share a bit more details on the role, progression and how 'fun' the role really is?
Bump, interested also
I worked in MM IB and worked with a bunch of LMM funds (Horizon, HIG, Blixt and a bunch more)
Can’t touch on comp wlb etc. but if it’s meaningful at all, most of these calibre at these funds was frankly very disappointing. I was very surprised with how little fundamental analysis these funds were doing for projections and valuation - almost all of these funds relied 100% on us to give them guidance on typical EV/EBITDA multiples in this industry and go from there (even if we were on the opposite side of table). Point is, a bunch of these funds seemed very low-level in terms of pure IQ and ability to think strategically about deals. Maybe it was the amount of dry powder they were getting pushed to deploy - I have no idea.
But based on my experience with these funds, the ones that were the sharpest and seemed like they’d give the best technical/strategic experience were frankly from those predominantly filled with ex-IBD Analysts.
On the other hand, a lot of LMM funds are filled with ex-MBB/LEK/OW/etc. consultants. From the funds I worked with, these were the funds that seemed lazier, less-strategic (and more random/non-sensical), less sharp, etc. Their specialty was usually in the DD process where anything non-financial was scrutinised fairly well, and this isn’t surprising as typically the ex-consultants in LMM PE usually did CDD beforehand.
This is correct. Most of these funds just got lucky in the c.15 year bull run in PE from 2008-2022. Literally you'd buy a business, do some minimal margin optimisation / M&A and the vast majority of your returns would come from a rising market / multiple expansion. Per the below, these funds are now under serious pressure because that playbook doesn't work anymore.
I wouldn't agree on the MBB/Banking point though - the sharpest investors in the market usually are consultant friendly (Advent, H&F etc).
Think about it this way: if you look at the 2012-2015 vintages for the UK mid-market (and to a lesser extent, PE in general), they are all stellar with TVPI/DPI of 2.0x (or even more, 2.5x). Why? because tonnes of money was blasted into the economy and C- assets were sold as A/A- assets in 2020/2021. These funds then raised an additional 1 or 2 funds on the back of this luck-driven track record (e.g. 2018-2022 vintages) which are tracking WAY WAY below previous vintages because that multiple expansion tailwind isn't there and the market is way more competitive.
Now, as the 2018 vintage dry powder has been deployed and funds are looking to raise again, LPs are asking "why should we invest with you, you got lucky, in your 7 year old fund you haven't even returned 0.5x to us yet, but you want us to give you even more $?, good luck".
Hence you'll see a big wash out in the market. And for those funds where they do increase fund size, the little secret is that they will have made concessions on top line fees to raise capital (e.g. 1% mgmt fee instead of 2% or significant fee-free co-invest rights) which all mean that the funds become much less lucrative and more difficult to build a career at.
Thank you for the value and insight. From a junior perspective, how would you feed this into your thinking? Ignore previous title but currently MM M&A and considered the LMM path. Do you get the impression it could still be a rewarding career over the next 5 - 10 years or is most of the alpha and good times behind us?
Thanks for the comment and insight, very interesting and somewhat resonates with some of my experience with exposure to one of the names you mentioned. There is the odd fund that has been very impressive i.e one of the 'other' LMMs (fund sizes of 300m or less). It does seem like there's a huge number of smaller funds that write tickets into EBITDA breakeven / 1-2m EBITDA positive businesses that essentially operate as quasi-VC or growth equity houses. That said, perhaps that's a function of the smaller UK market and funds moving lower down the value chain as multiples in the LMM / MM get bid up.
Defo this. Market feels very saturated.
How are you putting HIG in this LMM bucket?? Especially as they have a super hands-on approach, I don't see how the "little analysis" can hold there.
Your point on valuation is nonsense, the value creation plan for a PE firm comes from effective management not multiple, the reason PE let the M&A find the comps is specifically because it is a waste of time for them and that M&A usually have larger database for multiples. Your valuation is fun and all but ultimately the partner/committee have a price in mind and that's all that really matter. If you were telling me they let you do the full modelling for them, yes I would be worried.
IDK if you have some PE experience but there might be a biaise of you only having seen PE as clients hence not having the big picture of what is happening behind the scene and all the analysis made without a word to the M&A.
I have quite an opposite view on the ex-consultant part because what really makes you stand out (outside of your connections) is your business sense and ability to understand operations quickly. Ex-bankers tend to be very finance-focused (thus better in modeling that's a fact) but with less spontaneity when it comes to thinking about the market and how to have a relevant build-up strategy.
TLDR: a €1m difference on your QoE has less impact on your return than a 5pp change on your market CAGR (unless we are talking super small deal ofc)
I haven’t researched HIG’s London branch extensively but the deals we worked on with them (maybe 3ish) were all sub £100m - two platform-type and one bolt-on. Understand their fund is massive but the nature of their investments with us were undoubtedly lower mid-market
There is so much volume - asking value expectations is a quick way to screen and work out if something does (or does not) work and bin the IM.
Also, would add - sometimes the model / projections are secondary.
Management team or 'building' the team is probably a bigger determinant of success so that's sometimes where more of the analysis / consideration goes during DD.
It is a bit weird because having come from IB to MM / LMM London it felt counterintuitive, but have seen in play out.
UK LMM and MM space is under pressure and the current challenges will probably become existential for many firms. Many are either winding down or struggled with last fundraise - 3i, Dunedin, Graphite, Equistone, Exponent, Livingbridge, Mayfair, Sovereign. Hence there are not many good seats that would set you up for a long-term career.
Fundraising environment has been a bloodbath no doubt, do you have a read on what the timelines will be for these to be wound down? Does this influence your view on where the UK PE / LMM scene goes over the next 3 - 5 years? Hiring market seems to have picked up for specialist seats (Infra/renewables) but otherwise fairly flat elsewhere
It's highly firm-specific. Need to look at track record, fundraising momentum, succession and team dynamics, etc. Inflexion is probably best-placed at the moment.
Mayfair raised £500m - but was down on previous fund size
Graphite are out in the market at the moment - not sure how its going
Equistone - agreed
Livingbridge also not having a good time due to internal issues
Inflexion seem decent placed - but their returns (DPI) is surprisingly bad
There are just too many in 'generalist' or business servicey type
Cheers, any further info on inflexion returns / DPI? I’ve heard similar but good to get further insights
Thanks for your insights! Would you still recommend to pursue a career in IB/MM PE in such circumstance?
Heard that Inflexion also has an unfriendly carry structure, it don't know the details but apprently to make the same amount of carry a normal fund does at 2.0x they need to do 2.5x, not sure how that works in practice (perhaps lower carry % or higher hurdle). They also have have an European waterfall which means the 2015 fund above is only likely starting to pay carry now or about to despite stellar reported performance.
They simply quote the carry numbers at 2.5x CoC. So they say you get x bps of carry which is worth £y DAW, with £y DAW being at 2.5x CoC. The benchmark is on an absolute number (eg a Director should have roughly £y DAW) rather than on a bps basis. Hence when you scale it back to 2.0x CoC you’re underpaid by about 33% on a like-for-like basis.
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Makes sense, that is also quite funny how stingy do you have to be to do devise this, it really reflects poorly on their compensation philosophy and is aligned with their cash comp for their employees
What would be their carry allocation in DAW (based on their 2.5x quota) for various roles assoc - director+?
Which LMM/MM funds pay at / above average in London (to the extent competing with UMM/MF funds)?
Working in LMM IB/CF and quite a few of the regional funds are struggling and losing people. Heard Northedge's Birmingham team basically all left and they couldn't hit the fundraise goal they had originally set either
Sorry to hijack this conversation, but does anyone have any views on Rhône Capital?
Horrible culture and didn't do well at least recently
Saw this new fund called Hypha pop up - anyone know these guys?
Yes. They are all ex Foresight or primarily
Quite young. But I don’t know, kinda nothing to really differentiate.
How's Foresight? Not really heard of them tbh. Agree except deep sector expertise there isn't much to differentiate at that size and fund stage tho
bump - keen to get a temperature check on the ground? Many colleagues or friends have now left the UK, keen to hear what life is like for those still there and if LMM PE still remains a vibrant, enjoyable and desirable career path?
In LMM and it's been pretty bad for the last 24 months or so. Raised only a 1/3 of the target, timing was horrible as we got hit pretty bad on a couple of investments which were ultimately written off so LPs simply and rightly paused us and it's been a very long tunnel ever since. Yet to see the light...
Been trying to lateral for 12 months, had a handful of interviews with a couple going all the way to last round but could not convert (one took an internal transfer from another team and the other one ended up hiring an established director vs me as a VP). Market was not particularly active until recently and hearing some HH, it looks like it's changing but can you really trust those people?
Anyway, still keeping my eyes open and in the meantime, we have few hundreds millions of dry-powder to invest so overall it's not all doom and gloom with nothing to do but it does not give you a great level of confidence for the future.
Ouch - sector specific or generalist fund?
ty for the insight, sounds broadly in line with expectations. Had a couple of HH reach out but for LMM/Micro funds that are typically first cheque in (15-50) but this is at Assoc/Manager level.
Seems as though a fair few have bulked up regional offices and London has been left to fend for itself.
Wondered how much the general UK / Worldwide macro situation had affected both fundraising and fund performance? Had an interesting debate with a PE partner on this about 2 years ago now and he was adamant PE was somewhat shielded from big macro swings due to hold periods, a focus on non-discretionary end-markets and extreme risk aversion. Not sure I agreed at the time and now some of the chickens appear to be coming home to roost.
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