Mid Level Attrition
Over the last ~year, I've heard of several mid-levels (VP / Principal / Director) leave their firms with no job lined up or to do something outside of PE. This is across a few MM and MF firms
What has your experience been within your circles? Curious if this is actually a trend
Have seen the same, 90-100% have been fired or "pushed out" in my personal circle / folks I've heard of
A lot leaving voluntarily too.. once you have enough saved and if you don't think your carry is worth much (or $0) the golden handcuffs get a lot looser.
I'm in LMM PE and know of several VPs and Principals that have recently left their firms (including mine) and left carry on the table (not that it's worth much at my firm). One is doing independent sponsor and the other left to work for an AI company.
A couple other VPs/Principals I've talked to don't think they have great promotion odds given their funds are not performing well so will be tough to fundraise and therefore no "space" above for them to get promoted. They're staying for now given they're still collecting PE comp but TBD how long they stay
I've seen many at my MM firm (across multiple funds/strategies) stall out at VP/SVP level. Mix of getting pushed out/involuntary, or opting out to go entrepreneurial/first time fund/more skin in game/better culture. It's clear to me that at that level you need to start picking your head up and evaluating intangible factors, life, preferences, happiness, read the room, where you are valued / have runway. because it's not black/white anymore in terms of "i will do X and get Y result" like everyone on this forum is used to their whole life.
^in similar boat - been in the VP seat for a few years now and both myself / other mid levels at my firm are sort of hanging around the hoop, seeing if performance can turn a corner / carry will be worth something. Probably give it one more year and if things are still looking grim, do something else
Not even at the mid-level but I've seen a handful of associates leave after their first year in PE.
Many are trying to be operators or independent sponsors. I haven’t seen any good examples of success yet.
Starting late last year I've seen an insane amount of VP and Principal (even a Partner) left their MFs to do AI, start their own fund, or join a smaller fund...and they were all at their MFs >5 years
What were they doing for AI?
strategic finance... nothing else you can do tbh
I've noticed it's talked about a lot more than ever before but I still have not seen many people in my network actually make the move unless they are pushed out.
I think we all see that there is less upside than in the past, but this industry has gone through cycles and this is just another. Consider everyone who worked their way up to the mid-level through ~2005-2007 only to see 0 carry from those vintages and likely not much, if anything, from the predecessor funds.
We are going through a similar cycle where the ~2020-2022 vintages will likely not clear their pref hurdles, but if people can stick it out and their firm can weather this rough period, there will be a lot of upside to come, it's just going to come much later than we all wanted. You can't time the cycles - it's all luck.
Interesting points but I would disagree that this is just another cycle. Seems like there's permanent downward pressure on PE fee structure and PE returns. Don't think we'll see another PE bull market with very low interest rates like the 2010s. Also, tech/software sector was a big driver of PE performance. Now with AI here don't think there will be the same opportunities in that sector again (not saying tech PE is going away).
I hope I'm wrong though and would be interested to hear counter points.
I'll just call out that many people expressed a similar sentiment in the early 2010s when the 2005-2007 vintages did terribly. I agree there is less overall upside than in the past, but my overarching point was too many people are quick to jump to extreme conclusions about the industry not having any upside or significantly less than before. I still believe people who stick it out will see nice carry realizations for later vintages. Also, the consolidation that is happening will be beneficial to anyone not at a zombie fund. Longer term it'll mean less competition from firms in the past that likely were more "dumb money" bidding up assets to crazy levels and didn't have a real playbook or the best investment judgement.
On interest rates, I disagree that we'll never see another downward trend. Interest rates will continue to fluctuate as they have in the past - in some years they'll march higher and in some years they'll decline. The actual interest rate does not matter as much as the interest rate trends during the life of the fund given the impact to asset prices. For example, if interest rates increased to ~20%, of course it would have a meaningful impact on asset prices, but if you just raised a fund and you're a buyer in that market, you'll likely have a nice tailwind at your back with interest rates likely declining during your fund's hold periods. Similar to economic cycles, we will continue to see interest rate cycles. Again, they're impossible to time - it's all luck.
On the outlook for tech, I'd just caution you on jumping to conclusions there as well. I won't pretend to be a sector expert, but I think there are many arguments one could make for either a bullish or bearish view. While I agree with the view that moats will likely decline long-term, I still think tech will continue to see outsized growth as an asset class.
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