What exactly does the day-to-day portco work for PE associates/VPs/etc. at MM funds actually look like? I am joining a fund where I will be involved both with investing and portfolio company management.
The fund has a handful of operating partners and one of the associates focuses more on operations than investing. As a standard/investing-focused associate, what kind of portco to work should I expect?
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FP&A / random ad-hoc returns analyses / helping w external presentations / classic junior level admin tasks. Nothing glamorous.
I struggle to understand how most MM PE shops keep their associates super busy if they are not doing a ton of investing and this is all they do for portco work - any insight on this?
Multiply weekly calls w/ functional leadership / add-on opportunities / random science experiments * the number of portcos you’re staffed on (3-4 at my firm). Add all the process dynamics / deliverables required for a live deal and you’re looking at 80+ hour weeks.
Not doing any portco work is a terrible associate experience for anyone who wants to stay in PE, as it is where you learn a lot of different skills and ways to think about a business that are relevant at the VP level than just the investment work. With that being said at most firms across levels, the assoicates do some level of portco work for various portcos whether that be adhoc tasks or add-on related workflows (which at some firms across fund sizes can be a large chunk of your experience). I was at a MF as an associate where I did very little port-co work and think was much less developed as a VP than those that were promoted internally at my operationally-focused UMM. Think port-co work can be a really great learning experience especially at the associate / senior assoicate level, even if far more tedious.
we can do a simulation. I’m the CFO. You asked me for the last 2 months of revenue. Here are those two months of revenue.
Month 1:
Service 1 50
Service 3 24
PF adjustment 12
Cost adjustment (4)
Total 90
Month 2:
Segments 2 and 3 99
Service 1 8
Pro-Forma Cost Adj 15
Total 210
You need to build a model to analyze an add-on. The partners feel that the finances of this portco are not well managed and that it is probably best to blame you, the senior associate / junior VP, for this. You are reviewing the model tomorrow with your partners.
Basically you ask the portco 75 questions every month when results come out. 70 of them are unimportant to the broader picture but the partner or MD is on the email chain so you have to look smart. 3 have one sentence answers that have been answered every month. 2 of them are good productive questions. But the 70 unimportant questions results in rabbit holes that the junior PE employees get roped into eventually unless the portco has sharp and competent employees.
Former MF PE Associate here very little to no Portco work unless you were part of the deal team on a recently closed transaction.
Several reasons for this including (I) fewer portcos in each group given deal size / bar through IC (II) large companies with generally capable CFO / internal finance functions (although you would be surprised, makes you feel ok about your job security), (iii) portfolio / value creation teams involved to try and justify their existence when in reality there are only there to convince LPs they give you an edge when I reality they are basically just a project manager for outside consultants.
Portco work can ramp up for a few reasons (some positive / negative). Poorly performing portco / risk of restructuring so a lot of financing related work or just a ton of brain damaging analyses by principals and partners looking down the barrel of being shitcanned and manufacturing work. The second would be large transformational add-ons but these are rare and normal course tuck-ins are often handled by Corp dev teams. Some work if actively exiting a company too obviously (help guiding CIM creation, third-parties, exit analyses / waterfalls). The most annoying is the portfolio teams often have limited junior employees to run any analyses so they often loop in deal team associates to run useless analyses to help them look like they are adding value and justify their existence.
Hope his helps.
What's your view on the increasing trend of "portco value creation" divisions, or whatever they are called.
Complete waste of money. Operating Partners who are actually engaged and willing to make introductions / provide real industry domain expertise worth spending heavily on. Former MBB directors absolutely zero value add. Just adding a fixed cost line item to the GP when you can just engage with third-party consultants if you are working through a major initiative at a portco and that gets billed to the PortCo.
I’m not senior enough for the extra dollars to flow to me but think it’s just lighting money on fire.
There are two general types of Operating Partners
Ex Successful PE CEOs with applicable industry experience who know what it is like being in the trenches leading teams and actually know how to organically grow, manage cost, and execute initiatives in a lean resource environment while under the gun on an exit timeline. They can effectively coach portco management teams, selectively call bullshit, and know how to influence change with the Portco CEO/deal team when portco talent is failing to deliver.
Any other type - ex-Fortune 500 executives, the deal partner’s golf buddy from GE, ex MBB partners, non-CEO executives, etc. They either lack experience in PE or lack the holistic leadership capability to coach and drive change where it matters. They ask lots of questions that no one in the Portco cares about/has time to answer or they have lots of good “ideas” that no one has time/capability/resources to execute.
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