PE - Politics at Investment Committee / Inefficiencies
Hello PE monkeys. Some thoughts on politics at investment committee.
I am noticing as I progress into mid-level (Snr. ASO / VP) that politics is extremely prevalent at IC, especially amongst mid-levels, to the point of inefficiency.
At my firm, mid-levels are present at IC and asked for their opinions on prospective investments. The story essentially goes, team presents deal. Discussions ensue. Without fail, every mid-level not involved with the transaction shits on the deal / talks up the risk factors and expresses a negative opinion. I have never seen this play out any other way, to the extent it is honestly comical. I think this is a factor of relatively low carry allocations for mid-levels, so interests are not that aligned, and stronger motivations to be promoted by getting visibility on being associated with important transactions for the firm.
It's also basically a zero risk strategy to shit on other deals - look cautious and if it goes well in the end you can just say the gamble paid off. I'm not sure why the partners even ask for the opinion of other VPs / Snr. ASOs on the deal at this point as the answer will literally always be the same. The flip-side is you also are then forced to become a huge champion of your own deal, not presenting it in a balanced manner as you are aware that others in the team will of course be highlighting all of the negative factors. This is not a comfortable position to be in and has a high risk of making you look intellectually dishonest at IC if you are not careful.
I find it annoying personally as I would just like to be able to have an intellectually honest and balanced conversation about each transaction but everyone is forced into banking mode where you are trying to persuade the IC of the merits / demerits of each deal.
Curious to hear if there are any novel strategies to mitigate this issue at other firms, or if it is less present anywhere else. I am at an American MM/UMM based in London for context.
Based on the most insightful WSO threads, the dynamics you're describing at the Investment Committee (IC) level are not uncommon, especially in mid-market (MM) and upper mid-market (UMM) private equity firms. The politics and inefficiencies you’ve highlighted often stem from structural misalignments and individual incentives. Here are some key insights and potential strategies to mitigate these issues:
1. Root Cause: Misaligned Incentives
2. Impact on Deal Dynamics
3. Strategies to Mitigate IC Politics
4. Firm-Specific Variations
5. Your Role in Navigating This
In summary, the politics at IC are often a reflection of broader cultural and structural issues within the firm. While you may not be able to change the system overnight, adopting a strategic and balanced approach can help you navigate these challenges effectively.
Actually I don't know how to "mitigate" it, but I'd see this as more of an opportunity.
If it's the case that the other mid levels are throwing out any and all risks without a great degree of thought or balance, then be the guy or girl who does show thought and balance. If you're not presenting, for instance, then (AND THIS NEXT BIT IS EVERYTHING) if you do actually believe an investment sounds sensible, say so. And say so sincerely, which you can do by saying a reason or two. Of course, you need to add a "but" and highlight a risk or two, but you'll hopefully stand out as someone who, when he / she opens their mouth, is known to be saying something thoughtful and intellectually honest.
On the contrary, if you're presenting, then if some throws out a risk which is actually fair, say (/ agree) that it is a risk, and maybe you need to do more work on that to get comfortable. You could also respond by adding that (if there's no way to mitigate a risk) conceding that "there's a price for everything". Alternatively, make your fellow mid-levels sweat a bit - if they're being thoughtless or dumb, ask them "What would help you get comfortable with that risk?" (I'm not sure if your ICs allow for that, but it doesn't hurt to let the other side know that you aren't going to be pushed over and they might need to work a bit).
So perhaps there's no way to stop it, but you might be able to use it. There's that phrase "in the land of the blind, the one-eyed man is king"
Rem et iure dolores et omnis. Sed commodi adipisci pariatur est illo veniam porro iusto. Quas numquam sed quisquam ex.
Voluptates distinctio totam sequi dolores. Magni aspernatur accusantium voluptatem. Doloribus maxime vero quia et sint ut alias maiores. Eos qui ut nisi in perferendis tenetur voluptatem. Omnis dolore quaerat qui tenetur et eveniet molestiae. Fugiat eligendi animi et eligendi animi officiis.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...