Q&A: 2nd Year Associate at a MM Private Equity Fund

As a second year analyst in banking, I was in the $190-200k range and first year in PE I was in the $240-250k range. Wider range of comp at the junior level for smaller funds depending on fund performance, discretionary bonuses, carry, co-invest, etc.

Addressed both in other comments. Comp up, but hours are the same (and feel longer). All in I'd say PE is a better experience though.

I'll answer the hours question here. Lots of people grossly overestimate how much they actually work in banking. I would say I averaged 75 hours per week which includes Saturday and Sunday. Had probably ~10 weeks truly over a 100 hrs and ~5 weeks in the 50-60 hr range throughout my analyst stint.

In PE, I'm consistently at 75 hours. The math on this is 12-14 hours Monday-Friday and 5 hours each on Saturday and Sunday. On the critical stretches during deals, this becomes 85 hours. On lighter weeks, you can get away with 65 hours. Although this sounds essentially similar, the PE hours are significantly more demanding from the intellectual and critical thinking perspectives. I'll go into more detail on this in a comment below.

Great question. The below is not exhaustive, but there are 4 specific things that stand out.

1. You have to use your brain much more. In banking, I used to throw on some music or a podcast and crank. I can probably only do that 10% of the time now. Most of the time in PE, you are either doing business diligence analyses, modeling, or leading/actively participating in a call. Takes brainpower and concentration. Definitely took some time to adjust.

2. The hours are less volatile, but consistently longer. In banking, you might do back-to-back 95 hour weeks working toward a deadline, followed by a 50 hour week (recovery). In PE, I might only hit 100+ hours if we're sprinting toward signing, but rarely go below 75 hours. Main reason for this is because there is always something to do on a deal, regardless of the stage. To address an earlier comment I made, the hours in PE are roughly the same as IB (in my experience), but feel a lot longer because of the brainpower exhausted during those hours.

3. What you do actually matters. I rarely participated in calls or walked through models in IB. In PE, if my VP is busy I might have to walk our partner through the model solo. Regularly started to lead diligence sessions at the end of my first/start of my second year. You typically only have 1 layer (2 max) above you in MM PE, meaning you lose the safety net of 3 people proofing your work. People also ask for your thoughts regularly and it's important to have an opinion as such. 

4. On a positive note, there is tons of money to be made. MM is obviously higher on the risk/reward spectrum, but this is where you find outsized opportunities. Plus you can put yourself in a position to earn economics at a much younger age than your counterparts at larger funds. All depends on fund performance though.

Slightly more fulfilled because what you do actually matters. But still the same concept of lots of excel and PPT. Probably still lacking if I had to evaluate overall fulfillment.

Parts of PE that are fun/better than IB: meeting founders/mgt teams and picking their brains, dissecting a business into all its granular parts, speculating and debating on the merits/risks of an investment, learning how to creatively structure deals, nice hotels/flights/dinners often, having more control over your schedule/life, not working in a 2-and-out culture

Parts of PE that are not fun/worse: always something to do/downtime doesn't really exist, deal sprints can last weeks and are stressful, steep learning curve at all levels (each title bump is harder to achieve), traveling while working on multiple deals from a hotel room, less protection on vacation/time off just due to nature of deals and the velocity at which they move

Yes to both, but at the senior associate level. Takes time to achieve, but can be lucrative.

Not Rye, but same general area. I'm fine with commuting and knew what to expect when I took the job, but it takes a toll on others. If you think it will wear you down or drive you crazy, you're probably right. Good to be aware of before signing somewhere.

Why MM: more well-rounded PE experience, not banking 2.0, faster career trajectory, wanted to be in a growth environment. For context, many of my MF friends do not attend MPs or diligence sessions; their responsibilities begin at business diligence analysis and end at modeling, which means they become expert at those tasks and deficient at many others (e.g., live interfacing with management teams and humans).

Yes, long-term. Fund is growing and there is a path to continue upward. Not a situation where you have to wait until a partner retires or displace someone.

The answer is yes, but it is obviously nuanced. At the junior levels, you are trading significant cash comp for the potential to become a partner early and earn fund economics. Your chance of becoming a partner may be statistically higher at a MM, but your range of possible outcomes in terms of lifetime comp will be much wider (i.e., risk/reward tradeoff). Goes without saying that fund's performance is paramount. Being a partner at 35 at a fund that doesn't get into the carry is probably worse than being a VP at MF for a longer-than-usual period of time. 

Next steps: get promoted, get more economics, and keep repeating that. No need for b-school but always an option if I want to take a break.

The other obvious path is consulting and some funds specifically like to bring in ex-consultants.

Another logical path is via an actual operating company. I know several people who either went to or started businesses, became expert operators, and picked up the requisite finance knowledge and business acumen necessary to make the jump to PE. Some transitioned into investment roles and others went into operating roles. Becoming super well-versed and studied in an industry can be invaluable to investors. Pros and cons of investment vs. operations roles, but either way you're in a fund and any level of participation has the potential to be lucrative. 

Worth noting that there are thousands of middle market investment banks that exist (many of which you've never heard of). Getting into one of these banks can i) be less competitive, ii) provide a fantastic learning experience, and iii) create a natural path to MM PE.

I was in TMT for banking.

My first year of banking, I did very little actual technical analysis. It was mostly refreshing existing backups and putting together comps & precedents, with the random DCF here and there. I didn't start truly modeling until my second year. As you alluded to, I learned more about modeling from my own practice for PE than I did from modeling in banking. That being said, the modeling I did in banking has ended up being useful in terms of how I actually construct my models today (primarily just learning how to build super flexible/adaptable models; the only constant you can rely on with modeling, both in IB and PE, is that it will go through a million iterations & updates). I was worried I didn't have enough solid experience in banking before starting PE, but in hindsight IB was effectively an excel bootcamp that taught me the basics of finance and that was totally sufficient. You'll learn everything you need to know about PE once you hit the desk, so wouldn't worry a ton.

I knew I wanted to go a smaller fund that was growing and where there was a career-track option. Also wanted to be a generalist. Didn't do on-cycle because I was still in the research/introspection phase at that point. Didn't take a crazy amount of interviews and put a premium on finding a place where the people were awesome. Strategy, industry focus, and career-track aside, the people can make or break an experience. The litmus test for me has always been the interview process and i) whether I'm excited to meet new people and ii) if the interviews feel like true interviews vs. conversations. Lots more that goes into the selection but those were the key items I focused on.

Yes I have the opportunity to stay on. Goal is to get promoted, get more economics, and repeat that.

With my background I still get all sorts of recruiting looks (MM/UMM/MF, HFs, corp dev, etc.), but I would imagine that access to all of these paths (except for MM PE) will narrow with a promotion or two. Nice to have this optionality, but current thinking is to stay and growth within my fund. 

To answer your first question, yes. I think it will be more difficult for you than others, but I certainly believe it's possible. Elaborating slightly, you are still in school (hopefully have 1 or 2 more semesters to bring your GPA up), you can prep for PE interviews during your last semester, and you are already going to a top bank (clearly you are smart).

How did I know what shops I wanted to go to: paid attention to what industries interested me (answer was many, so wanted to be a generalist), wanted to go somewhere that was growing (i.e., bright future), and wanted a well-rounded experience as a junior (for me, I thought the best opportunity to do this was in the MM; might be different for others).

Why did I want to go into PE: hit on this in a comment above, but to summarize: you get to have skin in the game, learn all sorts of things about companies & dissect them, meet awesome & impressive people, and do impactful, real work at a young age. Lastly and importantly, the buyside can be lucrative in terms of long-term comp.

How did I approach recruiting: methodically; I didn't start until I truly felt ready.

Had all the same questions and know it's intimidating. Good news is that you're already on the right track. Lots of these questions would be better served by a conversation, which I'd be happy to do.

Feel free to book. Look forward to connecting.

Fair question. I do not believe your deal experience has any bearing on your career in PE aside from getting you in the door and giving you some background before you hit the desk. Hitting the desk in PE (at least in my experience) was a brand new experience. Instead of learning how to use excel, prepare analyses, and model like you do for some time in banking, these skills are table stakes across PE and it's incumbent upon you to begin learning how to think like an investor. In my experience, PE staffing was pretty much random similar to how banking was. Also similar to banking, if you become close with your seniors in PE they're more likely to put you on their deal teams and circumvent the staffer altogether.

Having larger deals on your resume can never hurt you. However at the junior level, everyone in the industry knows there is an element of luck involved. I think it's more important to have closed deals on your resume period (vs. larger deals). Getting the reps in, picking up new responsibilities, and having a seat at the table for a deal that transacts is an invaluable experience irrespective of size. 

No need to apologize.

This varies widely by funds. It could be one per month at some places and 3 per week at others. The writeup you prepare also will vary widely by funds. Some do 2 page word docs, others do 5 page PPT slides, others do simple one-pagers, others do a single summarized email to the IC, etc.

I know this is kind of an annoying answer, so I'll shed some more light on what my fund does. Step 1: Partner, Principal/VP, Associate review the CIM; Associate sends short one-page writeup to Partner and Principal with pros & cons, ultimate recommendation (submit bid vs. stand down), and proposed valuation. Step 2: Partner/Principal opine, often gather as a group to discuss if it's a potential bid, and iterate on valuation. Step 3: do some expert calls, speak with the bankers, possibly submit a short data request list, and iterate again on valuation if necessary before the bid date.

1. Have seen it happen. Not an easy path, but it can be done. MBA can possibly help, but it's an expensive pivot and the degree is less helpful to break into PE than it is for banking. Can definitely job hop your way into PE, just might take 2 or 3 jumps before you get there.

2. Satisfaction is subjective because everyone's measuring stick is different and yours will depend on what you're optimizing your career for. My only reference point of job satisfaction is banking, where satisfaction was pretty low. I'd say more satisfied in my current seat than IB, but I'm not skipping to work every day. That said, I do really enjoy certain aspects a lot and that usually compensates for a lot of the pain. Stress level: significant higher than banking (you have to own everything you do); sense of achievement: greater than banking (you are much less of a commoditized college grad and people care about your opinion); hours: the same on average, but more moderated peaks and valleys than IB; feedback loop: much better, mostly because people really have a vested interest in you (depends on fund & people of course).

3. Hard to make broad sweeping generalizations about industries. But if there is one I had to point to, it would probably be healthcare. Underlying trends are compelling, lots of innovation going on, and technology is sweeping across the industry. Of course, incumbents face disruption risk and regulatory risk is table stakes across the industry. This is not a new opinion - lots of capital has poured into the space for these reasons. 

4. Advice on how to network will really be unique to your situation. Leveraging your network is key and recognizing that your network is larger than you think is important. Happy to discuss via a convo some more.

I'll inevitably leave out a ton if I attempt to name them. Assuming you are trying to compile a list of fast-growing MM firms to target once recruiting starts, I would recommend looking at the successive fund sizes that various firms have raised. If a firm is raising a fund that's twice or more the size of its previous fund, that's a great sign that they're doing well. If successive funds are ticking up in size modestly ($500m first fund to $650m second fund, for example), probably means fund performance is modest in turn.