Q&A - Anything about PE / MBA / Life

WSO is the reason I had a chance in finance. It's been nearly 2-decades. Have been around the block (or rather up and down Park Ave and Madison...) with a detour to business school in between. Will share anything not covered by NDAs.

 

I am a strong proponent. If HBS / GSB - then definitively, yes. The reason is less so for the first job out of b-school - if you are a well-performing associate at a PE fund, chances are you can probably get a direct promote anyway these days. However, what most people do not anticipate but is a near certainty is that at a certain point in their career they will need too switch firms - perhaps even switch industries. At that point, the "automatic" stamp of a top-tier MBA is a differentiator - not to mention that over time, the network and resources and life experiences built at a top-tier MBA is invaluable.

People pre-MBA tend to whine about the cost $200-300k and the forgone income and usually it "costs" $1M . But I can tell you that at a mid-senior level, that's about maybe ~1 year of base+bonus (excluding carry) comp in what will be a very long career so the benefits far outweigh the costs.

All this with the caveat that the above advice is only true if you want to pursue a high income career in finance. Spending $300k on b-school and joining a regular way corp dev job makes the math pretty bad.

 

Did those in your MBA class that were going the corporate route typically end up thinking their MBA was a good decision? Seems hard to justify financially but its hard to quantify the branding benefit longer term.

 

This is not necessarily true. The majority of PE folks don't make it to Partner (either forced out or decide to leave the industry for better WLB, burnout, or other personal reasons), so you can't just easily justify the opportunity cost of $1mm by saying you'll be making $1mm/year later on (which, btw, only seniors make). Mid-levels do not make $1mm unless they're at Apollo lol. This is simply a ridiculous premise.

Separately, I know several folks in PE who are now in their late 30s/early 40s and haven't sniffed a whiff of carry, and they went to H/W (I haven't really worked with a lot of GSB folks). In the case of these guys (i.e., exclude carry/only look at cash comp), they've made considerably less than their banking counterparts, especially those at EBs. From a *strictly financial standpoint*, if you're already in PE, it's a better decision to forego the MBA (faster promotion, faster carry vesting, etc.)—the vast majority of my friends have done this (even those whose firms offered to sponsor their MBAs vs. direct promotion to VP).

I also disagree that the automatic stamp of a top-tier MBA is a differentiator. I think only M7 grads who drink their own Kool-Aid say this. If someone went to an Ivy UG → BB/EB IBPE, then decides he/she wants to switch industries after 6-8 years, I doubt that person won't be seen as a 'differentiated' candidate. If you're one of those who did IB + PEMBA → back to PE, then of course you'll be seen as a strong candidate since you have the same experience as the first example. I doubt the folks who did Big 4 → M7 MBAIB/MBB would be viewed as 'differentiated' just because they went to HSW. One of my colleagues has a similar background as my first example (Penn UG → JPM → PE) and one of our HR colleagues went to HBS (T20 UG, didn't do IB/PE, did MBB post-HBS)... I would be very, very surprised if anyone would consider the HR person to have a better background than my PE colleague.

FWIW, take this with a grain of salt, but according to one of my friends at one of the top recruiting firms (think CPI, HSP, etc.), nowadays, employers would prefer someone with more PE reps w/o MBA vs. someone with less PE reps w/ MBA (i.e., doing 6 years of PE is seen as more attractive than 4 years of PE + 2 years MBA). My current fund only cares about how good you are at your job (doesn't really care about years of experience vs. MBA), but the vast majority of mid-level/senior folks skipped the MBA and just worked their way up. My previous fund was 50/50.

Obviously, it's a very personal decision. IMO, if you already have an elite background (Ivy UG + IB + PE) AND finances/life decisions* aren't an issue (this is VERY important), AND you get accepted to H/S, then it's definitely worth considering (wouldn't say it's a no-brainer as I know several folks who turned down H/S to accept a VP promo). W is a bit of a harder decision, but it's still worth thinking over. Wouldn't even bother applying to the other M7s.

*Life decisions as in a 2-year break from working + burning your savings could significantly delay your plans to start a family or buy a home, or if you don't come from money and are helping your parents, siblings, etc. Another factor to consider is if you're in a serious relationship and the strain that an MBA program puts on that.

TL;DR: I think it's a very personal decision and what makes sense for one person doesn't necessarily make sense for another, even if both are in the same field.

 

Best job to date - small growing team within an established MF. Had the "platform" of the "battleship" while being super nimble within the small (but rapidly growing) team. Created significant upwards trajectory for growth that shaved a couple of years off the standard "path". Learned the 'skills' that really matter - i.e., relationship building, sourcing, judgement.

I actually rank my investment banking gig out of college above most of the other PE experiences that I've had. The camaraderie of sitting in a bull pen with your friends at 11pm eating $2 sushi hasn't been something I've ever been able to find in PE and eventually, you have too much other stuff in life that prevents you from experiencing that again. 

 

Was the new platform in buyout or did you help pioneer a new strategy?

 

How did you get the green card issue resolved?

In addition - right now or PE is going through a downturn and I’ve seen a lot of funds pushing associates out. Heard HBS has 50% unemployed and a lot of funds slowed hiring. When do you think the hiring market would be back?

 

Moved to suburbs. Can’t stand the city.

When I was younger I had net worth goals. Then at a certain point I stopped having those “goals” - created perpetual anxiety. I love investing - even if it paid like a regular corporate gig I’d rather do this than anything else.

Money is not an issue. Co-invest helped - carry is just starting to trickle in now. Word of caution - go forward returns in PE are very uncertain. Proceed w caution.

 

Word of caution - go forward returns in PE are very uncertain

Why? Is the industry getting saturated?

 

Having been in the industry this long and interacted with so many people, do you have any views on certain firms that may be contrarian to what most people believe (e.g. X firm is actually not as impressive as people think because of Y reason)? What are some of the funds for classic buyout PE you most admire and why? Are they more operationally driven (e.g. H&F, Advent, Bain Cap) or more financial engineering/opportunistic (e.g. Apollo, KKR, CD&R)? 

 

Interesting question. Yes. 

First overall thoughts. From the outside, there is generally a view that the industry / or certain firms must have some "secret sauce". I can tell you for the most part if there is a special sauce, it's heavily watered down. For the most part - the industry is more or less levered-beta and funds that invested in certain sectors boomed more than others (looking at you tech).

On the other end of the spectrum, value oriented funds, people on here assume that there must be some mad-genius behind some of the strategies and bets. I can tell you without being specific that sometimes the rationale basically is - "it's really big, and really cheap, and no one else wants to buy it". You can guess the fund(s).

If I had to put my own money, I think the funds that have the most disciplined investing strategy - (i) buy good businesses with growth levers, (ii) in fundamentally healthy industries, (iii) can add value through management teams and/or operations and/or capital structure, and most importantly DO NOT OVERPAY - will have the most durable returns over the medium term. 

I think firms like Advent, H&F, KPS fit the bill here.  

Also: For anyone who confuses genius with luck, look no further than [REDACTED...]

 

A little follow up on Value-oriented funds — from an PE insider perspective, does APO/Centerbridge or even HIG’s legal dog fight and hardball creditors work in long term or the effectiveness and intellectual stimulation of such approach are overrated?

 

Least favorite element consistent across PE - bad/toxic/no culture. The work is very interesting / intellectually stimulating. The people invariably however create dynamics that make the job way harder than it needs to be. 

 
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The core of the job is likely one of the most stimulating intellectual things a person can do:

1. Exposure - I've visited, learned about, and evaluated business models ranging from toilet bowl manufactures, to orange plantations, to consumer franchising businesses and everything in between. No two businesses and management teams are the same. And it's really fun for someone who gets bored doing the same thing over and over.

2. "Skills" - I don't actually play a sport but what makes the job fun is that you really need to be pretty good at a lot of different things. Relationship building. People management/influencing. Accounting/finance. Strategy/analysis. Judgement. Bottoms-up critical thinking. Presenting. Legal documents. Understanding capital markets. Hiring/firing. Managing third parties.

3. Money and capital is the lifeblood of the kind of society we live in. The above (1) and (2) gives you the ability to "see the Matrix" if you will that underpins a capitalistic society. I won't know any industry (except for this one) as well as anyone who spends a career in it - but I constantly find people surprised at much quickly/much I can talk to them about their respective industries based on nothing else but first order principles learned through this career.   

 

For those of us who are going through PE interviews/about to start our banking gig, how would you go about 1) learning how analyze companies from a PE investment/LBO standpoint & "general investment" standpoint. 2) Develop a thesis/articulable viewpoint on a certain industry? 

There a lot of sites where you can learn modeling/technical skills but there seems to be much less emphasis on "qualitative analysis" - thanks. 

 

Here's the dirty secret to associate recruiting - none of us are actually able to really distinguish between the analyst pool so it really all boils on to one thing.

1. How "likeable" are you during the interview?

There are several factors that determine that - some elements to consider:

1. Maturity - do you seem like a mature adult human being that can operate in a professional environment? (I couldn't when I was 22 - fake it till you make it)

2. Intellectual horsepower - I've been at one UMM firm that used to give a non-finance "test" to test aptitude; that was dispensed away with when other MFs started giving offers based on interviews only. Close proxy for this will be your educational background / GPA / how intelligent you sound. Be sure though to be able to do math - this is an easy proxy to quickly assess whether someone is above or below a bar. 

3. Financial aptitude - the technical stuff you can get in a Vault guide more or less. Just learn a paper LBO - it's not that hard. When I interview at least the only thing I'm actually testing for here is if someone bothered enough to at least study the readily available materials.

4. Qualitative analysis - this is by far the actually most important thing because this is at the heart of investing - BUT honestly this is not really tested to a deep degree or at all at the associate level (mainly because most of the associates / VPs doing the interview don't really know themselves). There's no "Vault" guide for this. You need to be interested. Some resources to consider are - Berkshire Hathaway annual letters, Margin of Safety (Seth Klarman), Competitive Analysis (Michael Porter), Intelligent Investor, Common Stocks & Uncommon Profits 

Lastly - it is not that hard to prepare for a PE interview - however you need someone to show you the ropes / what they are looking for. Do mock interviews with someone in the industry - it will help a lot. Because remember, really everyone is just a 22-year old trying to pretend they really understand what EBITDA is but secretly not having a clue. 

 

This is really interesting - thank you for doing this. Two follow-ups: 

1) Out of curiosity, when you were at the UMM shop, what were the primary topics on the non-finance aptitude "test"

2) What are some of the non-obvious (e.g. not being able to do a paper LBO, clear quantitative deficiency, unable to articulate an idea/thought) dead giveaways that signal to you that an associate is "below" the bar. I wanted to leave this open-ended in terms of which "factor of interviewing/recruiting" in case there are some that immediately come to mind/ aren't apparent, etc. 

 

There will always be a spot for it.

However, likely to contract in the short / medium term in this new interest rate environment that is looking more by the day to be longer-term than what people were hoping for. Investing to generate returns in businesses that have fundamentally derive value from (highly risky / uncertain) future cash flows / rapid growth is a tough proposition in an environment where any LP (or individual) can literally earn a risk-free 5% return in US Treasuries. 

All depends on what you want to do. If you are a kick-ass networker / people person, by all means, don't spend your life grinding through tab 284 of an excel tab if you'd rather be meeting business owners / thinking about business models. 

 

Thanks for the response! 
 

Interesting point regarding rates. Will definitely impact fundraising for the next couple years and can see larger LPs moving away, but how do you think it impacts deal making today? 
 

Would’ve thought that rates hurt LBOs more than these equity only deals (although growth naturally has more exposure to cyclical businesses)

 

1. Somehow got an off-cycle UMM spot (1 spot) back when 99% of people did on-cycle - I came from a slightly different background so wasn't part of the on-cycle pool. I probably got rejected from 5 firms and got the one gig at the largest fund I interviewed with. Take-away - so much of this is luck.

2. UMM experience helped me get admitted to a great MBA program. This to me was a defining moment. I went from an "imposter" kid from a lower middle class / immigrant family who "did not belong" to someone who at was assumed to "deserve to have a seat" because of a piece of paper and the "pedigree" (I hate that word btw) that it was associated with. 

3. Got laid off once. Got new jobs at firms I never dreamed of when I was an IBD analyst. Earned/lost 7-figures. My biggest point on this one is - a career is very long. There will be wins and losses. Experiencing "failure" (getting laid off, losing a lot of money personally) was one of the greatest experiences of my life in retrospect. It liberated me from the fear of "failing" - and at the expense of sounding cheesy - those experiences allowed me to focus on the journey instead of the destination. one of my favorite quotes: - The man who loves to walk will travel further than the man who loves the destination.  

 

If you were a 24 year old looking to choose a PE fund to spend the next 5-10 years of your career, what would you look for?

 

Probably not classic PE - seems over-saturated. Going on a limb, if I were just starting out, I'd do a bit of research into adjacent asset classes - credit, structured products / hybrid, distressed, real estate, infrastructure, energy transition. Chances are some of those will have much longer growth trajectories than buyout PE

 

If I want to be able to learn about different businesses and partner with them, what are some places to look into outside of traditional buyout PE?

 

Any thoughts on financial sponsor activity in the FIG space? Know there’s been interesting insurance investments, consolidations of banks, etc. How do you see all of it evolving, and what do you make of growth in the sector? Would PE be the best place to capture that growth, or another adjacent asset class?

 

Don't know enough. What I do know is that it's hard. Off the top of my head the only true PE firms that do FIG today that I know of are Apollo (entirely separate group today), Centerbridge, KKR, and back in the day JC Flowers? Some dive into the wealth advisory, business services space but I don't consider that FIG

If you like FIG I think it can be pretty interesting. Apollo/Centerbridge/KKR do some pretty funky stuff (e.g., Athene, Martello) and in some ways it's like incubating a business / corp dev / balance sheet capital vs. traditional buyout investing, 

 

Do you love your current firm and have a reasonable trajectory (i.e., 2-3 years) to VP? If Yes --> stay.

You should NOT lateral at a senior associate level to any other firm.

If admitted to Harvard or Stanford - I'd go. 

 

Thanks for doing this - currently a 1st yr associate at MM PE firm with a path to direct VP promote (non-target to IB to PE background). Strongly considering b-school and firm does not sponsor.

Given that PE recruiting post-MBA has been tough (goal is to move to the up-market), what are your thoughts on going to business school vs. lateral recruiting for senior associate roles?

 

Does the carry really materialize? What are the right terms and how much should I expect at VP and Principal roughly. How often do people get screwed here?

 

Unless you've been in tech carry has been difficult to materialize last 5-10 years.

As for size - it's going to be all over the place. Typically 1st year post MBA - ~$2-4M DAW. Principal level - $8-10M. This is UMM/MF. But these are *headline numbers* and pre-tax.

It's less so getting screwed but the vesting terms really are what gets you - in order to collect carry you need to:

1. Stay for the deployment period ~4-5 years 

2. Stay the entire harvest period ~4-5 years

3. Actually get a 2x gross MOIC - much easier said than done, especially today

4. The reality is between life circumstances, getting pushed out, and what not - few people manage to sit in that seat for the long-term to really collect that carry. And that's when you need to get into the fine print - usually when you leave you you lose a significant portion of carry if you're in the earlier years. Also firms will have terms such as the ability to claw back carry automatically if you leave, buy you out at FMV, etc. etc. - and at the mid-level you really don't have any leverage. 

 

Unless you've been in tech carry has been difficult to materialize last 5-10 years.

As for size - it's going to be all over the place. Typically 1st year post MBA - ~$2-4M DAW. Principal level - $8-10M. This is UMM/MF. But these are *headline numbers* and pre-tax.

It's less so getting screwed but the vesting terms really are what gets you - in order to collect carry you need to:

1. Stay for the deployment period ~4-5 years 

2. Stay the entire harvest period ~4-5 years

3. Actually get a 2x gross MOIC - much easier said than done, especially today

4. The reality is between life circumstances, getting pushed out, and what not - few people manage to sit in that seat for the long-term to really collect that carry. And that's when you need to get into the fine print - usually when you leave you you lose a significant portion of carry if you're in the earlier years. Also firms will have terms such as the ability to claw back carry automatically if you leave, buy you out at FMV, etc. etc. - and at the mid-level you really don't have any leverage. 

Could you speak more about leverage? 

Have you historically / should we negotiate if we're getting a first VP role? Seems like the terms (especially the legal points as it relates to Carry) are sort of just given to us, similar to when you're accepting an Associate role but not sure if that's a naive view of how to navigate entry into the midlevel ranks of PE. Presumably there's negotiation that takes place when lateraling, but I'm still unclear on how much leverage a first / second year VP has given the narrow exit universe / scarcity of opportunities 

 

Any advice for creating boundaries between your personal and professional lives? Developing Resilience? 

Got laid off last year and haven’t been able to find anything since. In the process of applying to roles I’ve found it difficult to establish boundaries and have seen my personal and professional lives become increasingly blended. I have hobbies and interests but have found no matter what I do the stress of not having a job to always be hanging over my head since I don’t have much financial security (3 YOE). 

Feel more or less at a loss for how to move forward as I’ve burned through my entire savings during the last 12 months. I’ve tried exercise, breath work, etc. which help slightly but having to hustle to keep a roof over my head has been an all consuming kind of endeavor that I’m never able to get out of my mind. 

 

I'm sorry to hear that. You're not alone, and many of us have been there, are there, or will be there. This is a bad market. I won't give you any "tactical" job advice as I'm sure you have those covered. 

As for creating separation - some things to noodle on:

1. Anxiety does not exist in the world - it is solely a product of your mind. It may not feel like it - but "you" (i.e, your mind) are creating the anxiety, not the outside world. Creating that boundary is entirely in your power. If you some time, read a book by Viktor Frankl - "Man's Search for Meaning". 

2. Reflect that the anxiety is detracting from your life and your goals. It's like being on an airplane for nervous flyers. You're going through turbulence and you have no idea when it's going to end. You have no idea what the guys/gals at the pointy-tip of the plane is doing. Now there's 2 options. You can sit there with an elevated heart rate freaking out, actually stressing out your body and mind, or you can acknowledge that no amount of anxiety is going to help the situation - and paradoxically, the most reasonable course of action is to focus on only the things you can control without the anxiety. So in this case, understand that creating the space will HELP you get to your goals (because the anxiety is actively detracting).

3. Ask for help. Friends, family, therapist, SSRIs - you are working through something in the mind that is as real as a physical condition. If someone diagnosed me with cancer you can bet I'm going to go the doctor and get help and not try to grind through it by myself. Depressive states or sustained heightened levels of anxiety are treatable. 

4. Practice gratitude. You have health and family. People who love you. You are obviously smart enough. You have energy. You have youth. Let me give you a thought experiment. Warren Buffett is worth $200 billion. He is 93 years old. If he came to you today and said, hey [Guy/Gal] - you can have every single last dime of my $200 billion if we can switch bodies right now. Would you do it? Do you have any doubt that he would make the trade if he could?

 

Really appreciate you taking the time to offer a thoughtful response and have a follow up for you.

In another post in this thread you had mentioned being laid off and learning a painful investing mistake as things that helped you overcome a fear of failing, which I related to a lot. In a lot of ways it feels as if my career to this point has seen many if not all of my worst fears realized. Short of a major health episode/illness/disease or death it really feels as if I really have nothing to lose at this point, which has made me increasingly more risk tolerant. 

Do you have any advice for people looking to go further out on the risk curve? Could you elaborate more on overcoming that fear of failure? 

 

That sounds really tough. Below a few more tips that helped me during stressful moments in M&A / private equity and I hope that it will assist you to enjoy your free time right now even if it is fucking hard. I'm sorry and I hope the below helps you.

1. Breathwork - Works wonders to focus on a slow deep breath, Your body automatically goes from survival mode (Am I going to find a new job, when, how am I going to fund myself) to the present. The slowdown creates a physical reaction by your body (not mind - which definitely helps) and drives down your nervous system. Breath in deep for 4 seconds, hold for 4 seconds, breath out with a loud sound (or not if you are in public and feel uncomfortable) - repeat this 3-5 times until you feel more relaxed.

2. Gratitude Meditations - Simply 10min in your morning can work wonder. Especially when the anxiety and stress is building up, sit down, and listen to it while breathing deeply. Focusing on what you have will shift your mind and body's energy to create more of the good stuff than if you focus on what you do not have (a job and financial security - attracting even more chaos in your life).  

3. Questions - Tons of research studies state that 95% of our behaviour is controlled by our subconcious. If you focus on what you lack, your subconcious mind is trying to create more reasons to lack since it wants to proof you right (this mechanism helped us to survive 10,000 years ago). It is the same with if you think you suck at work, you suddenly blow more and more up out of no reason. Ask yourself the right questions to be able to enjoy your free time right now. Instead of "why is it so hard to find a new job?" say "Why is it so easy to find a secure job with an even higher salary that does not feel like I simply receive personal injury compensation?" "Why is it so easy to secure a good financial basis?" Why is it so easy to create boundaries between my personal and professional life?" Your subconcious mind will start working on finding solutions.

This method has worked wonders for me and I love applying it.

4. Identity - When I was working at a MF in private equity, my whole identity got more and more tangled with my job. Definitely not the healthy version of work life balance. I realised over time that I was not happy anymore but it was hard for me to take a break and reflect. If I were you, I would use the time and think about what is actually the lifestyle you desire as well as financial wealth. How should your ideal job look like, how does an ideal day looks like? Is your identity entangled with a top finance job or are you open to start looking at other career opportunities? I know the current situation is really hard for you but I would encourage you to start looking at different industries, such as the start-up industry (can be questionable in itself as the finance industry but there are some great opportunities out there), or which new innovations / industries are thriving over the next years. Just see it as an option while interviewing with funds / finance jobs.

I know people who left the finance industry after a few years behind them and started working remotely at start-ups in the management team while traveling and having more time for themselves plus financial security. In case that is not for you right now, you can also start working at an freelancer / consultant (without posting it on LinkedIn if you prefer), building financial models or consulting small businesses to receive money and be less stressed. I really encourage you to open up about new perspectives. It takes the pressure off which is also reflected in more confidence during your interviews.

I recommend you to get a mentor or coach if possible to whom you can talk regularly. I started working with a coach who understood my fears, doubts, and thoughts about the investment banking / PE industry and it worked wonders for me.

5. Skills - You did not mention it but just in case, it is very important that you do not doubt yourself and believe in your skills. I don't know the situation why you were laid off but I believe that 50% of people in finance are laid off due to company policy (like some funds in which 10% need to go annually), 30% having questionable people above them and thus suddenly start underperforming while the rest is just not being suitable for getting yelled at at 5am because the footnote is not in the right format.

I've been through a similar situation full of anxiety while building resilience. I truly hope it will help you!

 

Thank you so much for taking the time to offer your perspective! 

Would you mind if I PM’d you?

Interested in hearing more about your experience working with a coach and wanted to get an outside perspective on lifestyle/big picture you mentioned under identity.