Moving from direct to co investing

Any of you monkeys moved from direct to co investing? What prompted you? How do you rate the work (similar? Boring?) and WLB? I'm looking out too switch and getting offers to interview. Tbh the pay is mostly at par with others and I'm getting tempted by the amount of deal flow these funds see. Is this career suicide? Will I have a hard time finding something in direct after associate programs end?

 

I made the switch after doing the traditional MM IB to MM PE move. I was tired of the long nights in what seemed like banking 2.0 and my prior firm had terrible culture. I now find the work to still be stimulating and feel as if I have more time to actually think like an investor and see more deals. As you mentioned, my base is similar to what I was previously making but a slightly lower bonus. The pay differential is typically seen the higher you go, as traditional PE seniors accrue a large amount of their wealth in carried interest/favorable economics. Because these roles can be seen as "lifestyle" jobs, you see people remain at these firms for a while and don't often see them go back. Still, as long as you're not too senior and have prior transaction/IB experience, I've seen a few people make the move back.

 

Appreciate the response and agree.

My 2 cents: people tend to be over-dramatic of the shift. If you have experience on the direct investing side, that doesn’t suddenly disappear from your resume, you can still leverage it in interviews. I’ve seen people bounce from direct, to co-invest, back to direct. But honestly, comp doesn’t seem to be that different from what I’ve seen (i.e, comp at a mega fund co-invest group likely still be > 99% of most other places).

 

Co-investing is a really great pay / lifestyle / interesting work balance. I'm working in MM PE but was tempted to move across.

I do think once you've accumulated 3+ years experience post-associate, it will be difficult to transition back to direct PE; I've not seen it occur myself personally, but one of my friends is trying to do this now - he's not getting many interviews although he hasn't got any IBD experience and came through an untraditional route.

I think the key questions you should be asking are: why co-investing vs direct, what are the differences in skills (i.e. DD), how can I bridge that gap.

 
Most Helpful

Just completed my first year at a MM co-investment shop (750 - $1,500mm AUM) after spending 2 years in IBD. I’m pleased to see the comments thus far have been positive and would generally agree with what’s been said. I’ll throw in my two cents:

Generally the work is more execution focused and you’re not going to have the same access to diligence as you would on the direct side. Deal timelines are much shorter (think 1-3 months) vs. typical PE processes. A major factor (and in my view benefit) is that you aren’t the one coordinating the many different work streams as you would on the direct side (QoE, market studies, legal diligence, financing etc). Rather, usually by the time a deal comes to you these work streams have been completed and it’s simply a matter of reading through these materials and making your own decisions. Some will look at these factors as a negative, but if achieving greater WLB is your goal, not having to spend time creating marketing materials, coordinating third party diligence, arranging financing etc. allows for greater time spent evaluating the Company and Sponsor thesis (and sleep/free time!). The notion that your “copying and pasting” the GPs work is nonsense, but rather you’re evaluating the GPs work and making your own assumptions / asking your own questions to conclude whether or not you think the Sponsor’s case is feasible. GP’s love their deals, but that doesn’t mean there aren’t any potential risks/downside that exist or that may make it non-fit within your own co-investment fund. You definitely aren’t going as deep as the GP on each Company, but that’s kind of the point given your fund probably already has a primary relationship with the GP and you essentially approach the deal already knowing what the GP’s sweet spot / expertise is and can therefore rely on some of their work with respect to the GPs value creation plan. Much of your diligence will focus on stress testing GP assumptions / developing you’re own assumptions and market analysis. Sure, this isn’t as sexy as flying out to meet a management team and leading board meetings, but again slightly less prestigious/engaging work is the trade off for greater WLB. 

Of course you’re going to probably take a hit in comp vs. a direct role, but comp is still competitive. One nice thing many coinvest shops offer is access to fund co-investment and carry at the junior level (Assoc, VP). Considering these additional items you’re probably coming out on par with other juniors in a direct PE role who must wait until principal for things like Carry / Co-Invest. 

Lastly, I certainly don’t think this is career suicide especially if you already have previous direct experience. Many of these co-investment funds are the exit ops many on the direct side make later on in their careers because of the better WLB discussed. I don’t think you’d have a hard time getting back into the directs space given your job within a co-investment role is to maintain relationships with many of the funds you’d likely exit to. 

I think generally speaking co-investing roles get a bad rep on this site. 

 

On a typical day work until 7 or 8pm, slower days may finish around 5 or 6pm. Summer hours can be even slower depending on what deal flow looks like. Hours most likely vary significantly from firm to firm given IC dynamics, deal flow and team size. Over the past 12 months I’ve worked a hand full of weekends (all live deal sprints), but weekend work is not the norm. Location is NYC. PM me for comp info. 

 

Associate 1 in PE - Other

Just completed my first year at a MM co-investment shop (750 - $1,500mm AUM) after spending 2 years in IBD and a year in private credit. I'm pleased to see the comments thus far have been positive and would generally agree with what's been said. I'll throw in my two cents:

Generally the work is more execution focused and you're not going to have the same access to diligence as you would on the direct side. Deal timelines are much shorter (think 1-3 months) vs. typical PE processes. A major factor (and in my view benefit) is that you aren't the one coordinating the many different work streams as you would on the direct side (QoE, market studies, legal diligence, financing etc). Rather, usually by the time a deal comes to you these work streams have been completed and it's simply a matter of reading through these materials and making your own decisions. Some will look at these factors as a negative, but if achieving greater WLB is your goal, not having to spend time creating marketing materials, coordinating third party diligence, arranging financing etc. allows for greater time spent evaluating the Company and Sponsor thesis (and sleep/free time!). The notion that your "copying and pasting" the GPs work is nonsense, but rather you're evaluating the GPs work and making your own assumptions / asking your own questions to conclude whether or not you think the Sponsor's case is feasible. GP's love their deals, but that doesn't mean there aren't any potential risks/downside that exist or that may make it non-fit within your own co-investment fund. You definitely aren't going as deep as the GP on each Company, but that's kind of the point given your fund probably already has a primary relationship with the GP and you essentially approach the deal already knowing what the GP's sweet spot / expertise is and can therefore rely on some of their work with respect to the GPs value creation plan. Much of your diligence will focus on stress testing GP assumptions / developing you're own assumptions and market analysis. Sure, this isn't as sexy as flying out to meet a management team and leading board meetings, but again slightly less prestigious/engaging work is the trade off for greater WLB. 

Of course you're going to probably take a hit in comp vs. a direct role, but comp is still competitive. One nice thing many coinvest shops offer is access to fund co-investment and carry at the junior level (Assoc, VP). Considering these additional items you're probably coming out on par with other juniors in a direct PE role who must wait until principal for things like Carry / Co-Invest. 

Lastly, while I certainly don't think this is career suicide especially if you already have previous direct experience, many of these co-investment funds are the exit ops many on the direct side make later on in their careers because of the better WLB discussed. I certainly don't think you'd have a hard time getting back into the directs space given your job within a co-investment role is to maintain relationships with many of the funds you'd likely exit to. 

Just my 2 cents. I think generally speaking co-investing roles get a bad rep on this site. 

A really awesome answer. Advice that WSO was built for!

 

Thanks for your very detailed response - agree that spending too much time on this website has warped my own mindset now. In terms of actual work done - how many deals a year do you typically close? Do you make your own models or just tweak assumptions in GP's models? On the sourcing side, do you always wait for GPs to come to you with deals or is it more proactive than that?

 

Also considering making the move from MM PE to a coinvesting role. Seeking more predictability in WLB and somewhat less intense pressure, and personally happy to take a modest hit to compensation and 'prestige' etc. for that (just what I'm looking for).  Have you seen others make a similar switch at the VP level? Are there certain coinvestment funds that would value the MM PE direct GP experience more than others? Who are the headhunters for these roles?  

Thanks all for the information, this site has really helped me.

 

A friend just made the move - a few good items people don't typically talk about:

  • [Probably the most important if available] Levered co-invest -> can get up to 70-80% debt on personal no-fee, no-carry co-invest into FoF or co-invest vehicles. This gives a real ability to get some very nice levered returns across a very diversified fund. Those that are smart in the industry can make more money from co-invest than cash comp, depending on firm cap and ability to get proper leverage. If you don't have a cap and have made good money before making the switch, you can really put large $s behind this program. I'd expect the first couple years of paying into the co-invest to be tight on cash or even negative until you start getting distributions to fund future deployments. 
    • Example: $200k investment with 75% leverage: $50k personal investment & $150k loan. Lets say the fund doubles and returns $400k. After paying the bank back the $150k principal (and interest I didn't account for), you are left with $250k... you just 5x'd your investment on an underlying relatively modest 2x fund return (the math gets even better at higher returns)
    • You typically get levered co-investment opportunities at PE funds depending on your level. Sometimes you can get greater leverage with a more diversified FoF & get the actual benefit of a more diversified fund.... this benefit carries over into every aspect of the job (see next bullet)
    • Maybe others will disagree but I believe carry / co-investment is much safer in FoF environment than direct PE. Imagine if you are a fund that doesn't perform well... all of a sudden you may not be able to raise a new fund, your base + bonus + job + livelihood (track record, etc.) are at stake, your carry could be worthless and your levered co-invest isn't going to return what you were hoping for. There definitely is upside at PE if things outperform but I'm more of an S&P500 type of guy than a WSB person (but to each their own)
  • If something goes wrong at a company, your weekend isn't ever blown up... always investing behind a GP that is in charge and responsible
  • Rare weekend work at mid-level/senior levels (may be specific to each company)
  • Relationship driven business model allows for a lot of social time being beneficial to job  (every PE friend is now a connection and you could be a future client)
  • Being the "money" gives you a lot of respect (whether genuine or not), people treat you nicely. For context: bankers are client facing to PE firms (and strategics)... PE firms are client facing to LPs.
 

It really depends on the size of the firm you're looking for. I've worked at an UMM firm and a smaller MM firm. At the UMM, our co-investors were some of the biggest names with designated co-invest groups like: HL, HarbourVest, NB, Adams Street, Allianz, Pantheon, AlpInvest, GCM, SWF's, state pensions, etc. At the MM it was mainly large family offices and lesser known (not necessarily smaller) firms with teams that often do both: Apogem, RCP, Harris Preston, Capital Dynamics, Committed, Siguler Guff, Twin Bridges, Portfolio Advisors. I tried to name as many as I have seen but please comment and add more names you've worked with if I didn't already.

 

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