PE commoditized. Are Searchfunds the answer?
Title says it all. To my understanding, interest rates will never return back to where they were back in 2008 - 2022. They were effectively 0 (for most years) and the fed is now targeting 2%. The people who were at the MFs pre IPO are billionaires, and the partners now will never reach that level. It just sounds like PE is a rat race that won’t yield what it used to. Not to mention there’s so many firms all doing the same thing.
With that being said, are search funds a good vehicle to pursue? Sounds really hands on and actually intellectually stimulating and although you may not be a billionaire, you can hit returns much sooner than slaving to make partner.
I honestly could be wrong all over but definitely want to hear everyone’s thoughts.
No. If you think PE is commoditized, search funds are far worse. The number of 28 year olds reaching out to boomers to buy their HVAC businesses is ridiculous. I know one guy who owns a rather small HVAC company in a very undesirable location that gets 10-20 emails a day from different search funds. Sticking it out in PE is WAY better from a risk-adjusted standpoint (though you might have more fun running the search fund but also probably won’t make squat).
More fun running a search fund? Lol, bro you have lost your mind. Acquiring, running, and managing a business is the most difficult endeavor I've ever done (way harder than working in IBD/PE/HF.) I wish I'd taken/stayed in LMM/MM PE when I had the chance even though I would be making less.
OP - nobody knows the future. Don't choose a career on where the future will be, but what you enjoy more (building/scaling a business vs. investing in them in PE).
Congrats on your success, nice to hear when search funds work out for folks. “Fun” meaning less monotonous, less mundane, often more complex than large cap PE. Fun in the sense that your linear algebra teacher describes inductive proofs as “fun.”
(1) Search funds are nothing like PE. The only thing they have in common is the buying of control.
A search fund is, from the searcher’s perspective, running a small business. Private equity, even at LMM levels, is still fundamentally a finance job. Those are two totally different things.
(2) This is giving peak “I have never been through a business cycle” energy. OBVIOUSLY, when you create a business, you will have the opportunity to make more money than if you are “just” an employee. Yeah. That’s how this works. There is a reason why on the world’s richest people lists you don’t see finance professionals up there at the same rates you see finance people in the top 1% of income. There is a reason why the percent of the top 1% that is in PE, and the percent of PE professionals that are in the top 1%, is so high.
If you want to be rich, finance is still the easiest path to do so. If you want generational wealth, the easiest path is still entrepreneurship (well, ignoring marrying into it and having it be given to you by family since those are not work-related).
del
Yes. Even with the tiny operationally-focused LMM PE funds, these are two very different jobs.
Even at such a fund, you are still in a job that is fundamentally a finance one. Operationally-focused PE firms are “operationally focused” in the sense that they tend to be more involved in at least one of the following. (i) High-level strategic work. Think what you’d have a corp dev team involved with. (ii) Leveraging an already existing network. For example, if the company sells widgets and the pe owner has a different portco that buys widgets, they facilitate that relationship. Another example is the portco needing a loan to finance a new manufacturing plant and the pe firm uses its financing relationships to facilitate the loan.
A search funder is going to be part of all that while also doing things like conducting performance reviews, running sales meetings, creating the actual computer code, etc.
A search funder is responsible for all the details. They are a small business owner. Where in PE, even the operationally-focused ones, are investors.
And who do you think is competing with the searchers? These LMM funds are trying to get proprietary or brokered deals too. The amount of C suite exects that have been pushed out from LMM roll-ups and decided to start their own search is astounding.
I never said Searchfunds and PE were similar, I was simply comparing the two investment vehicles lol.
Obviously I haven’t been through a business cycle, hence why I’m on WSO and why my name says “Intern in Finance”.
I think your points, although right, had nothing to do with what I asked.
Since these pop up on a regular basis, I'll post part of my answer to someone else who also had plans of starting a search fund.
People from "high finance" often cannot fathom how unmotivated and, for a lack of better word, lazy many people can be. You think because you have an "analytical mindset" and have jumped through the hoops of the corporate world that you are able to apply some of the PE playbook to companies that are somehow underdeveloped, but fail to realise that most of the time you'll just be running around putting out fires because every stakeholder around you needs handholding and needs to be pushed. It's a really tough job, and by no means an easy way to make a living.
Very different skillset
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