Megafund PE -> Impact Investing (IFC World Bank)? Am I Crazy?
Hey WSO:
I wanted to get a second opinion on my next potential career move.
Personal background: Graduated from top target 2 years ago, went to a megafund (BX / KKR / Carlyle) out of college, been here since. Right now I work with top tier talent on smart deals, and make decent bank...but I just don't think what I do is purposeful or helpful to the world at all. Sometimes borderline harmful. My hours are also pretty tough (although at 80-90 probably not the worst you've heard of - still painful though).
In another life, I like to think I would've done the Peace Corps or something but then Wharton happened to me. For some time now, I've been eyeing a transition to impact PE at a international institution like IFC (World Bank) / EIB / ADB / CDC. I'm very late in the interview process at several of these places and expecting an offer very soon. It seems exactly what I want on paper - using PE to deliver economic development to places that need it.
But a few things are making me quite wary:
My peers (other PE/IB analysts) are telling me I'm literally insane to take a 30%+ paycut and "brand dilution" to do a less exciting and more bureaucratic 9-5, when the alternative is to keep my resume "pure" by recruiting for a tiger cub hedge fund and making mid/high six-digits. Quite frankly I think the pay/WLB trade-off is great at the junior level.
When I speak to people working at these places, they do seem a little surprised to have someone like me so enthusiastic about joining
When I look at people who have come through these places, a ton of them seem like they go to a top B-School and re-recruit for the private sector (PE / Tech / Consulting) instead of staying in impact investing. Not sure if this means everyone just uses this role to craft a cool MBA admissions story, or if people are genuinely enthusiastic about the mission at first and then become disillusioned.
My questions are:
Am I actually crazy for considering this? Is it crazy to be contrarian about this whole "Harvard -> GS -> KKR -> HBS" prestige-whore track my friends are all attempting? My thesis is: there has to be a point where we have to get sick and tired of proving ourselves for cash and recognition, and I'd rather reach that point in my mid-20s than my late-30s when I'm cuffed to deferred comp and have lost all my personality and dreams. But at the same time I'm very scared that I'll be sad and wrong when it's all said and done.
If it turns out to be the wrong decision and I head to B-School to path-correct, would a place like IFC on my resume hurt or help my chances at a top MBA (H/S/W)? If I want to return to traditional PE post-MBA, would this stint hurt me, notwithstanding the fact I have 2 years at a top megafund already?
Do you think these places actually help the world, and if you know people who do this kind of work, do they seem to find it meaningful?
Thanks a ton.
I don't think it is crazy at all, but just have a good understanding of what you're getting into. All the organizations you named have key differences in how they operate -- it isn't like comparing GS to MS to JPM. The structure, amount of red tape, quality and backgrounds of people, teams (direct vs. co-invest-vs. fund investing) really differs from place to place.
I've worked indirectly with IFC and CDC in different capacities (investors in one of our funds, co-investors on a deal we led, and investors in a company we were also invested in, but they came in separately). I found the people to be a mixed bag, which is why I think it really comes down to specific teams, offices, etc. Some of the teams were very involved and analytical, whereas others were really underwhelming in their understanding of a transaction and basically took what was told to them by us at face value (when in many cases it deserved to be challenged quite a bit).
I wouldn't worry about hurting your resume, as brand wise these are all great places. I would just caution you into looking at their investments and really understanding where in the org and with which org you would be able to achieve your goals of really making impact. The bar for "impact investing" is pretty low in terms of what qualifies. The investments I mentioned above were all pure for-profit, financial transactions, which qualified as impact because of the broad criteria. For example, a grocery store chain would qualify in many countries because it is providing food, which also supports lower income individuals. It isn't necessarily that the bulk of the work is building schools in rural Afghanistan, if that makes sense.
Feel free to message me and am happy to go into detail on my experience with IFC / CDC at least. I know people who have interviewed with EIB and ADB, but not enough beyond that to comment on them.
You do what makes you happy. Fuck prestige, fuck what anyone else thinks. You do you.
Hey sorry for the delay. Like I mentioned earlier, I’ve been working in impact investing for a while now after abandoning "the path" that many of my former colleagues from GS / MS took.
This is the biggest question that you'll have to answer – how much do compensation and prestige matter to you? It's a highly personal decision and there’s not necessarily a right answer. So I’ll tell you about how I rationalized the decision for myself:
Incremental income doesn’t matter - I know this is crazy to say on WSO, but past a certain point, income levels don’t matter too much. Especially if you already make enough money to have a good/decent lifestyle. Research has shown that once people make six figures (with adjustments for cost of living), happiness levels are not correlated to income. If you already have a nice car, does it really matter if you could afford a slightly nicer one? It’s more likely that any extra money just goes towards your savings anyways. Yes, you could make the argument that I could retire a few years earlier if I made more money, but I’d probably work more hours per week in traditional PE so it balances out a bit. Also, I didn’t grow up in a wealthy family so I don’t have any affinity for expensive things – I enjoy eating fast food just as much as going to a fancy restaurant.
Prestige doesn’t matter - When I was in college, I used to think that prestige was important. College kids used to worship me when I was at GS/MS but the novelty wore off pretty quickly. After pulling a few all nighters in banking, I realized that nobody important in my life actually cares about prestige. The funny thing is, the most successful people I know are the ones who went off to do their own thing and take a risk (like entrepreneurship or small startup funds), while abandoning prestige.
Better work / life balance - I work way less now than I used to, and I actually have time for hobbies, fitness, and friends/family. Things do get busy sometimes during live deals, but quality of live overall has definitely improved. Meanwhile, many of my friends in finance have gotten burned out after the 2+2 in finance. There are probably some personalities that just want to grind, but I don’t think I really want to work 70-80 hours a week for the rest of my life.
Personal fulfillment - I'll elaborate on this point later in my comments…
I’m going to completely generalize and stereotype right now (sorry in advance), but in my experience working in finance, people usually fall within one of these three categories (the % allocations are just guesses):
OP, my guess is that people are surprised that you fell into the third category since there are not many people like that in the finance world. Usually, people who prioritize impact for their careers don’t take a finance job right after graduating. They usually go directly to a government role, a nonprofit / foundation, Teach for America, or a company focused on impact (renewable energy company, healthcare company, etc).
I think this phenomenon is more specific to IFC in particular, based on what I’ve heard from those who worked there. Because they have a large analyst program, that organization seems to attract a lot of recent college graduates who just want an investing role or want a prestigious MBA (they have a good track record to HSW), but don’t care about impact that much.
Just look back at the old Abraaj Group analyst program threads on WSO as an example of this. Abraaj was big in impact investing (before they blew up due to scandal), but nobody in those threads was talking about impact.
I don’t think this is the case with many other impact investing firms. You’ll see that many employees actually came from traditional finance and made the decision to move to impact, rather than vice versa.
I’ve thought a lot about how much brand/prestige/comp matter and I think it essentially comes down to what you want to accomplish in life (see my earlier thoughts about the types of people in finance).
I’ve talked to several 60+ year old finance guys who made tons of money, but still feel like they didn’t do anything meaningful as they look back on their careers. This is usually the point where they start getting involved in nonprofits or donating their money.
Here’s another way to think about it: as you reflect on your career 40 years from now, would you feel more fulfilled if you did an LBO of a widget manufacturing company and got a 4x return, or if you provided growth capital to help an education technology company scale up and lift thousands of kids out of poverty? Which deal would your parents, significant other, and family be more proud of? What about your children and grandchildren?
Wouldn’t it be amazing if we helped create a world where anyone can live a good life, even if they were born in the favelas of Rio de Janeiro, the slums of Mumbai, or the housing projects of Brooklyn? Even if they were born into a family with very little money or the wrong color skin? Well, there are plenty of companies focused on education, financial inclusion, and healthcare that need capital to innovate and scale up.
Or how about a world where global warming doesn’t raise sea levels and displace 150 million people by 2050. It’s crazy when you look at scientists’ forecasts – half of Vietnam will be underwater, most of Bangkok will be gone, Mumbai will probably be wiped out, and New Orleans will be sunk. Millions of other people will live in arid conditions and be forced to relocate, farmers will struggle to grow food, and entire animal species will die out after surviving for thousands of years. Now is the time to invest in renewable energy, battery storage, electric vehicles, and sustainability.
Personally, I know I’d rather do meaningful work as early as possible, especially when I think about what my goals are and what my ambitions were as a bright-eyed optimistic college kid.
In my opinion, here are the pros of joining IFC:
Here would be the cons of joining IFC:
Low compensation (relative to PE) with not much long-term upside Not always working with impactful companies (more focused on the region rather than industry) and some colleagues are not impact-oriented
Can sometimes be slow / bureaucratic with little pressure to get deals done
Not always the most analytical / financial rigorous teams. It’s not as essential for them to maximize financial returns by getting an extra 25 basis points of leverage, and they can afford to cut corners
They have a weird MBA requirement before people can get promoted to senior positions
On the MBA admissions question, I think you’d have no problem getting into HSW after going to IFC or a similar organization. MBA programs generally like those big government institutions and have great relationships with them.
If you do decide to return to PE after IFC, I think it may hurt slightly (or at best be neutral) primarily because they aren’t known for being rigorous financial investors and you’d be investing in different markets than most PE firms do. However, since you already have megafund experience then I’m sure you could still return to PE again (but maybe not as easily, or not the same fund size).
However, my recommendation would be for you to consider some other impact investing firms before deciding. IFC is certainly not a bad place to be, but there are other great firms out there as well (not sure how much you've thought about them yet).
I think it would be good to provide some background on the broader impact investing landscape, since there are a lot of other options out there beyond just IFC if you want to make a difference. You should be fully informed about other opportunities are before you accept a potential offer. Here’s how I would segment the landscape:
Philanthropic organizations - These are usually organizations that provide program-related investments (PRIs), mission-related investments (MRIs), or grants. PRIs target below-market rate returns, such as interest-free loans, loan guarantees / letters of credit, or equity investments in risky (but highly impactful) companies that would otherwise struggle to raise capital. MRIs target market-rate returns in impactful companies / regions (but less risky, more investable companies than PRIs). Grants can help catalyze an early industry / technology that needs initial capital to get started (carbon capture for example). Examples include foundations (Ford Foundation, Rockefeller Foundation, Gates Foundation Strategic Investment Fund), nonprofits, and some family offices
Government institutions - This is the category where IFC / World Bank would fit in. Oftentimes they are investing in emerging markets, with the idea that economic development can have a big impact. Some of the companies they invest in may not be in an impactful industry (like renewables or education) but they create jobs for people who really need them. They usually do debt, equity, and fund investments, and sometimes make grants as well. Examples include development finance institutions (IFC, OPIC, IDB, CDC Group), foreign aid institutions (USAID, UNICEF)
This is how I would rank each category based on impact (high to low): 1. Philanthropic organizations - In my opinion, these groups have the highest impact out of everyone. Philanthropic and concessionary capital is desperately needed and can be incredibly powerful. Subsidizing a new drug development that could save millions of lives. Developing new renewable energy technologies is critical to fighting climate change. Traditional investors would never put money towards these companies though, since they are too risky / unproven 2. Government institutions - I think these institutions can have a big impact because of the size of their balance sheets (government funding / budgets), plus their work in developing countries that are most in need of economic growth and investment. Sometimes they are not looking to maximize financial returns, so they can enter riskier areas where their capital can really make a difference. However, they can also be bureaucratic and slow-moving at times, so I’ve heard that not as much gets done as they would like. Also, they are not always investing in impactful sectors (the grocery store example) 3. Pure-play, independent impact firms - These funds are generally less impactful than philanthropic groups or government institutions, because they seek strong financial returns. However, they are still able to scale up impactful solutions that may not otherwise get much funding. For example many regular investors won’t even touch cleantech with a ten foot pole, but an impact investor might identify an emerging business model / technology with better sector knowledge, or be more willing to come up with a creative / complicated deal structure that works. However, sometimes these bets have not worked out in the past, and some firms in this category have gotten mixed financial returns. Others have done well though, like DBL Partners (the first institutional investor in Tesla and SolarCity, long before electric vehicles or solar became mainstream) 4. Sector focused, impact-adjacent funds - This group is a mixed bag on impact, I think some of them have great results while others do not. For example, healthcare is a tricky sector, since some healthcare companies make money by gouging patients and charging high prices or reducing service quality. A healthcare focused fund might still invest in that company even if it leads to bad outcomes for society. However, it would be hard to find a renewable energy fund that is not impactful – reducing carbon emissions is good for the world and quantifiable. 5. Large asset managers with impact funds - Some of these funds are branded as impact for marketing purposes. One impact investing industry leader I know went to a fundraising pitch for one of these firms, and came out saying they are an ESG fund disguised as an impact fund (ESG investing basically screens out negative qualities while impact investing seeks positive qualities). There are related questions around authenticity – did Bill McGlashan (of college admissions scandal fame) really seem like the type of person who cared about impact that much or did he only care once it became marketable and he could collect fees? There’s also the issue of “additionality”, or what happens if the fund doesn’t invest in the company. Are you truly helping the world if a traditional investor still does the deal even if you’re not around (so the impact would have happened either way)? In my opinion, greater impact is created when a company has a special situation that prevents it from getting traditional capital. These impact funds tend to have less additionality, due to the larger deal sizes that they play in (more capital availability and more competitive auction processes). On the other hand, these funds are bringing more attention to the impact investing space and getting LPs more comfortable with the concept, so maybe they are a net positive despite the points above
This is how I would rank each category based on compensation (high to low) and work/life balance (low to high) 1. Large asset managers with impact funds - Market-rate comp for typical middle market fund sizes of $500M to $3B (mix of growth equity / buyout), so you’d get paid decently. However, it would likely be a discount in comp if you’re coming from a $10-15B+ megafund. The reason is pretty simple: lower AUM, lower fees, and therefore lower comp. Accordingly, I would expect the work life balance to be similar to traditional private equity. The senior guys at these funds probably came from these backgrounds as well, which affects culture 2. Sector focused, impact-adjacent funds Market-rate comp for typical middle market fund sizes of $100M to $2B (mostly growth equity). I would expect the lifestyle to be a little better than the large asset managers, but still similar to traditional PE. This is very firm-specific though obviously 3. Pure-play, independent impact firms - Some of the firms in this group are smaller in size ($100M to $1B funds), leading to a bit lower comp. Others are family offices, which aren’t known for paying as much as traditional PE. As for culture, people who are impact-oriented are generally nicer to work with, so I would expect a better work/life balance overall (maybe 9 to 7 as a benchmark with occasional weekend work) 4. Government institutions - The pay is worse than the three groups above because these are public sector jobs. Compensation is usually capped and set at certain rates for everyone. You should still be making over six figures, but there’s not much upside over time. I’ve heard that lifestyle is pretty good and 9 to 6 is fairly common. There’s not as much pressure to do deals and they’re not involved in competitive auctions most of the time. These can be good cushy jobs, especially if you have a family and value personal time away from work 5. Philanthropic organizations - From what I know, the pay at these organizations is not great, essentially because they want to maximize their impact by not overpaying people (they’d rather preserve that capital for grants or PRIs/MRIs). Sometimes comp is lower than six figures at these places. I would expect lifestyle to be quite good though, with 9 to 5 work hours and no weekend work.