PE Thought Bubble and Firm Inquiry
Hey just wanted to spew some thoughts down somewhere about (view on PE industry going forward, recruiting rationale, etc.) For context I am a senior graduating soon and headed to a recognizable MM bank. I wanted to do it here just so I can get people to chime in. There are probably going to be a lot of grammatical errors and sentence structure lapses, so just a heads up (just spewing whatever comes to my mind).
Industry View
Recent reports point to plenty of headwinds for PE: fundraising challenges, return compression, and various structural constraints. Despite this, I don't think the industry is going anywhere, and the reason becomes clear when you view it from the LP's perspective.
Every year, LPs have to allocate a certain amount of their pie across investment vehicles: equities, bonds, and alts (PE, VC, GE, real assets, etc.). Even if recent PE returns haven't impressed them, the dollar amount flowing into alts will continue to grow. This is because the overall pie keeps expanding (driven largely by equities performance), which means the slice allocated to alts grows in absolute terms even if the percentage holds steady.
One could argue that LPs might use this growth to push away from PE and toward other alternative categories. However, modern portfolio theory pushes them in the opposite direction, continuing to allocate toward buyout PE in the name of diversification.
That said, I do think LPs will start demanding real differentiation among firms. There are essentially two ways firms can provide it. The first is the megafund model, where differentiation comes from a "supermarket" feel of having everything in one place. The second is operational intelligence. The days of pure financial engineering are waning, so firms that carve out a niche and know how to operate (or help operate) companies in that space will have a winning edge. I believe these two areas will be of central importance to LPs going forward.
Bringing it back to my own perspective as a prospective associate, I think operationally focused firms have the tools to really shape me into a beast. Which brings me to my next point.
Associate Recruiting
After a lot of thought about what I want post-banking, I've landed on PE. I've also spent time thinking through what kind of shop I'd want to start at, and here's the profile I've arrived at:
- Fund size: $2-10B
- Location: NY office
- Strategy: generalist across industries (doesn't have to be too broad)
- Operational capabilities when the situation calls for it
- A strong senior team I can learn a whole lot from
Would love thoughts from anyone who knows firms that fit this mold. Also happy to hear views on the industry spiel above. I have been ghosting a lot of HH emails just to figure out what I wanted. Feels very good to have all of this written down because now I can see what target to aim for. I know the 10 billion fund size may be hard to achieve coming from a MM bank, but I could give less of a fuck. A lot of remarkable things occurred because someone decided to go against the status quo. Thanks!
Your thoughts on the PE industry and recruiting rationale are insightful and well-structured. Here's a breakdown of your points and some actionable advice based on the most helpful WSO content:
Industry View
Headwinds in PE: You're spot on about the challenges like fundraising and return compression. However, as you noted, LPs' allocation to alternatives, including PE, is unlikely to shrink in absolute terms due to the expanding overall pie. This aligns with the broader trend of institutional investors seeking diversification and higher returns in a low-yield environment.
Differentiation Among Firms:
Decline of Pure Financial Engineering: This is a widely discussed trend. Firms that can drive value through operational improvements, rather than just leverage, are increasingly favored by LPs. Your focus on operationally focused firms is well-aligned with this shift.
Associate Recruiting
Your target profile is clear and ambitious. Here's how it aligns with firms and strategies: - Fund Size ($2-10B): This places you in the upper middle market (UMM) to lower megafund (MF) range. Firms like TA Associates, Leonard Green, and Advent International fit this mold. - Location (NY Office): NYC is a hub for many UMM and MF firms, so you're in the right place geographically. - Strategy (Generalist): Many UMM firms operate as generalists, though some have industry-specific teams. For example, EQT (US) and Welsh Carson are generalists with operational expertise. - Operational Capabilities: Firms like HGGC, Thoma Bravo (tech focus), and Warburg Pincus are known for their operational value-add strategies. - Strong Senior Team: Look for firms with a reputation for mentorship and development. This information can often be gleaned from WSO threads or by networking with current/former associates.
Next Steps
Final Thoughts
Your ambition to aim for a $10B fund size despite coming from a MM bank is commendable. Many associates have successfully made this leap by demonstrating strong technical skills, a clear understanding of the firm's strategy, and a genuine interest in PE. Keep refining your target list and preparing for interviews, and you'll be well on your way to achieving your goals. Good luck!
Sources: Private Equity Recruiting Walkthrough – My Experience, Q&A: Associate at MM Private Equity fund, Private Equity Recruiting Walkthrough – My Experience, Private Equity Recruiting Process (From Banking), PE Recruiting Guide
Dude….just smoke a joint and wait for your first day in banking as a first step
Incredibly generic points and the spiel about AUM increasing so PE AUM increasing is very surface level. Traditional long only AM was in that spot and it has been a "shitty" place to build a career for the last 20 odd years. PE will go down the same route with fee compression - already the case with monitoring fee offset, larger co-invest commitments, larger discount for early anchor commitments etc. Will still be a very lucrative industry that is for sure.
No offense but the PE “profile” you’re targeting represents the majority of LMM and MM PE firms. Not really a profile, you need to be more specific
None taken. My profiles were really just a starting point. I'd genuinely love to hear any differentiations between firms you're aware of. Off the top of my head, I know some are known as turnaround specialists, some are buy-and-build, some are deep-value players, and others are comfortable paying high multiples for great companies.
I appreciate the honesty. That's exactly why I made my thought process public, so any weaknesses could be pointed out. Thanks!
Dude seriously, you don’t know what you like yet and you don’t even know if you’ll last 6 months in banking. Use your free time to enjoy the last free time before locking yourself in a bank
You can’t go into banking thinking about what you want to do post banking because you’ll burnout immediately
I get that and I understand where you're coming from. But I quite literally have nothing to do right now. All my friends are still taking their last finals, so I've had no one to mess around with. I've been trying to occupy my time with working out and thinking about stuff like this.
I didn't give any thought to post-banking plans until this semester. That changed because I took a PE class at my school taught by a senior partner from one of the MFs (adjunct). The class was meant to mirror associate-type work, with a lot of projects and some lectures. I'm sure it's not a perfect simulation of the day-to-day, but I really liked what I did, and I connected well with my professor. He put me in touch with a good number of people in the industry, and I enjoyed my conversations with them. That's why I wanted to give it some real thought before grad week, when I can actually start relaxing with my friends.
I really do understand why you think it's useless to do this now, but shit there's only so many sets of bench presses and pick up games I can do per day. My liver is definitely gonna go through a roller coaster for the next two months starting Friday at 5 PM EST.
Ok fair
But don’t overthink this. At the end of the day it’s like dating - you go on a date with the girls that call you back, not all the ones you wanted. And sometimes it’s not because you’re ugly or not good enough, maybe they just had a bad day when you met them
As you work through your banking stint you will also learn what you want to do and like. And maybe that’s not PE
Good to be prepared but take it easy
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