Random Things I Wished I Knew About PE

Mostly meant to be a cathartic shitpost that I’m typing in lieu of going to therapy, but I hope it resonates with the minority of this forum who aren’t the insufferable fuckers that are constantly posting Tier threads. Bring on the monkey shit, but the real ones will know there’s some truth here.

1. A crucial skill nobody talks about is the art of killing a deal

Harder to do this in banking because you’re client-facing and literally can’t say no…but in PE, you actually pass on most deals. The tricky part is when a Partner has his eyes set on some fucked opportunity that doesn’t fit your mandate and/or is just kind of a shitty company overall. Maybe they’re enamored by the Management team, or they think the market is going up, but you know this flaming heap of garbage will NEVER get through IC, no matter how many numbers you make up.

Your dipshit, ass-licking VP or Principal probably agrees with you privately, but they’ll still go ahead and create a bunch of work to “find an angle” or “get convction” in this piece of shit, and you know what that means? More work for you.

So, you just have to continuously plant the seeds of doubt in each of the team members – continue to show them certain analyses and find new logical holes in the deal (without doing too much work) until these fuckers can’t defend it any longer. “Yeah, I think this opportunity is attractive because of [x & y], but I think the gating items we need comfort on are [3 things you know the Company DOESN’T have]. I think [some IC member] will really push on this, and if we can’t back this up [we can’t], it’ll be super hard to get this through”

Now your mid-levels are getting more nervous and don’t want to get burned by the IC / spend a bunch of DD money on a foregone conclusion, and you just pray they convince the Partner to stand down. Another crisis avoided and hopefully a weekend or two saved. Keep in mind, you were supportive of this deal, but wanted to proactively flag the gating items – you were truly a value-added bottom-of-the-totem pole team member
 

2. Shorter hours but more stress

This is obvious for most in the industry, but yes my hours are, on average, less than banking. On a live deal, yes everything is fucked and you’re probably pushing 100+ hrs, but on average I work less. However, I didn’t give a single shit about what I did in banking. Seriously, like you turn comments, and when the comments are turned, you’re done. Zero fucks given. First year of PE, people ain’t checking shit. They might spot check that things make sense (which you obviously should do as well), but you could have a small bust in your operating model for weeks and not realize because you have a bunch of other shit to worry about.

That kind of shit eats at you, since deal teams are leaner and you’re fielding a lot of “why” questions. It’s actually fucking stressful and especially when you’re operating on zero sleep, are doing the Memo + model, managing 3rd party DD, and are expected to have a coherent view, it’s just extremely mentally taxing even if you don’t really give two shits about the job
 

3. Many times, promotion is a game of attrition

The people that get promoted to Sr. Assoc / VP, simply put, give more of a shit. It’s also important to not be retarded, but typically those people have been weeded out at this point. At this stage, you just have to have a great attitude and seriously act like you give a shit and suck some dick. You know those people that circulate industry articles to the team that they found “interesting” just for the sake of sending that article around?

Yeah, those types of people. Same people that are constantly networking, talking about work when you’re at Happy hour trying to get shitfaced, etc. It’s not that hard to move up so long as you just do what you’re “supposed” to do, give a shit, and honestly just express a desire to not leave.
 

4. Sr. People aren’t as smart as they’re made out to be

The sheer amount of asinine questions that Partners have asked in Management meetings that show that they actually have zero clue about what the company does, is quite frankly embarrassing. Literally sometimes basic fucking questions that are answered on p. 1 of the teaser, or p.1 of that overview deck I sent them that they didn’t read (surprise surprise).

This one actually isn’t a huge deal – obviously the partners have a shitload going on but it is fucking hysterical to hear the CEO of a company, whom the Partner has “known” or has “connectivity into,” explain their solution offering for the 5th time like they’re speaking to a 5 y.o.
 

5. Detailed modelling is overrated

The vast majority of models are just fucking wrong when you compare actual performance vs. what you modeled. Purely a tool for CYA / liability management. It’s such a tragedy to build out some monster model with a bunch of made-up drivers for every line item, just for the MD to want to sensitize Rev CAGR or EBITDA CAGR. You’re telling me that you don’t really give a shit about the product mix shift from x to y that results in +30 bps to IRR? Great, because for some godforsaken reason the VP wanted to sensitize this shit for “back-pocket” purposes and I burned another late night. Oh, and the output page in the IC deck showing all these useless sensitivities got put in the back or killed because, guess what, nobody gives a shit.

Have seen some PE models (or GE) that were literally revenue growth + % margin assumptions, etc, and they’ve actually been way more accurate. Obviously depending on leverage, etc, you want to get granular with debt items, but most super-complicated operating builds are garbage-in, garbage-out, and everyone pretends they know shit they don’t
 

6. Good luck getting into H/S from PE if you’re overrepresented

This isn’t the main point of my post or meant to be offensive in any way, but it’s something that’s known in the industry, and B School consultants will say the same thing. Unless you’re god’s gift to earth or get a good roll of the die, it is disproportionately fucking hard to get into H/S if you’re a white/Asian/Indian male in finance, and that’s just a reality. No matter what your stats are, there are a million overachieving, overrepresented PE Associates competing for limited spots they’ve allocated. Fact of the matter is, if you have equivalent stats / ECs, you’re better off working in pretty much any other industry, if you strongly want to go to these schools
 

7. Getting staffed on an underperforming PortCo is literally the worst thing ever

Imagine you just start out and you’re taking over PortCo coverage from a departing associate – super exciting opportunity to learn the ins and outs of a company and get close to management, right? No, because that Company is underperforming its underwritten case by 20% and every quarter is a clusterfuck of questions coming from the Partners & LPs, frantically emailing the management team to find “adjustments” to show co-investors that things aren't actually that bad, tons of ad-hoc analyses for why the Company is so shitty (or vice versa), and constant tense interactions with Management who probably will grow to hate your guts. Lead partner on the deal is stressed, mid-levels are stressed, management is stressed, and you’re the one putting together all this work for this piece of shit Company you didn’t even help underwrite. It’s truly a nightmare and I wish this fate on nobody.

Anyway, that’s all folks. If I get sufficiently pissed off again I might write a part 2 shitpost.

 

As an incoming PE analyst this is extremely helpful. Regarding the last point, what would you advise someone to do if they are dealt the responsibility of overseeing a trash PortCo?

 

Idk. Just a glorified excel monkey that is un/lucky enough to have a MF name on their LinkedIn. 

 

I've seen a senior VP quit to run away from one, so...

tbf he didn't make that investment and went on the record being strongly against it, but got shafted it anyway.

 

Is PE really investing? Seems like a sales role at the end of the day. 

 
Most Helpful

A lot of truth in this, and I liked the delivery (it was amusing). That said, I do want to hit on two points that this post kind of makes light of, but that I actually think are legitimately important things for more junior people to understand (even if they move into something other than PE).

First, on point number 1, the art of killing the deal thing is true and it can be frustrating. But while "Keep in mind, you were supportive of this deal, but wanted to proactively flag the gating items – you were truly a value-added bottom-of-the-totem pole team member" was written in jest, it's actually true. Being willing to flag things that are contradictory to the thesis that someone senior to you is pushing is actually an absolutely critical skill, and doing it in a way that is elegant and doesn't piss people off is going to pay dividends in your career. So don't sleep on this one, and don't throw your hands up and say "fuck it, the partner wants to push forward so I won't voice my views." Maintaining that integrity is one of the most important muscles you can build.

Second, on point number 4, getting comfortable asking idiotic questions in serious situations is another extremely important skill. I ask, on average, about five absolutely moronic questions a day. I do it in internal meetings, I do it in management presentations, I do it on diligence calls. The reality is that no one knows everything, and often a lot of other people don't realize they don't understand things until you ask your stupid question and they say to themselves "actually I can't answer that either." Sometimes, yes, you ask something you really should have known and it's momentarily embarrassing. It is way more embarrassing not to ask the question, and then have someone else ask you two weeks later when you are deeper in a process and be incapable of responding. I also don't think this is the reason you should do it, but if you have a reputation for asking the simple questions, you are actually building a reputation of making sure you understand what's going on. So what seems reputationally damaging ends up being reputationally helpful (plus the obvious benefit of actually knowing this stuff when the questions do inevitably come up later).

Anyway, just my two-sense - not meant to interpret an obvious venting / joke-tone post as 100% serious, but it made me think of those two points that I think are useful for others to appreciate.

 

I love the posts and I think they are true. My partner fell in love with a not good investment.

After several consecutive atttempts, ALL IC members killed the deal.

It could have been stopped at the initial stage....

-- Alpha Seeker --
 

Slower day (thank fuck for those Pilgrims) so can be responsive:

Are you considering exiting? If so, to what?

Yeah I'm gone when my program is over, maybe sooner. Not good for my mental health, and it's starting to show in my non-work personality (more cynical, if you couldn't tell). Would consider Growth Equity - I like finance itself and I'm pretty good at it. The things that I really dislike about PE deals is the level of granularity you have to go during diligence - it sometimes makes me cringe when I spend disproportionate time asking Companies super detailed questions that they can barely answer, mostly because I have to ask or because I know we'll get burned if I don't, and which have no material impact in whether or not the investment is actually good. Would rather diligence the market, build a simple model, and spend more time as a partner to the mgt team.

Regarding the last point, what would you advise someone to do if they are dealt the responsibility of overseeing a trash PortCo?

What's been your experience on dealing with co-investors if a portco isn't going well? Sometimes internally the PE fund may be able to make peace with a poor decision but I imagine it's tough to say that to co-investors?!

This is purely my experience but lots of times there's gonna be some underlying animosity between the Partners/VPs and the Company management. Unfortunately, you're dealing with a lot of communications to ask for data, etc, so you're the one who's gonna have to play nice. Imagine you miss another quarter and Partner now wants to see [some made-up data/metric that doesn't exist or would take the fuckers literal days to pull together]? Yeah you're the one asking / managing that workstream, so figure out how to get to the "answer" of that ask without fucking over the Company. Like literally, sometimes I'll dial up the CFO or the finance guy and say, "look, at the end of the day, we just want some idea about x - let's brainstorm how to get there with what we have available." As an Associate you need to be good to Management or else your life will be fucking hard since you're pretty much asking them for shit all the time

Also, you just have to constantly tell yourself that this shit isn't on you. Look, I'm not getting carry allocation so I just have to mentally tell myself I do not give a fuck. Lots of people in finance end up feeling they need to take an outsized sense of ownership when they don't, and if it's something outside your control, it is what it is. I get my paycheck and do what I have to do

For co-investors...yeah it's super annoying, and my experience is that you're doing two sets of reporting. Internally you can be more realistic, but for co-investors, you wouldn't believe the amount of pro forma adjustments I'd be making to shit. Feel like a sell-side banker. At the end of the day though, they want you to spoon feed them that shit, because they can't look bad in front of their committee either. Everything is cover your ass, and that continues to hold in PE and co-investors. Also, those guys aren't nearly as familiar with a deal as the GP, and in my experience, they don't want to be. It is SO much mentally easier for them to take back whatever shit you fed them back to their committee and pin it on you, which is why we try so hard to convince them that a POS PortCo is actually doing OK. Also, for a lot of co-investors, you're doing them a massive favor. No-fee, no-carry returns with 10% of the work? Sorry bro, you're bound to get burned at some point

Is PE really investing? Seems like a sales role at the end of the day. 

C'mon bro - pretty much everything is sales at the end of the day. But yea, we sell shit to IC to get it approved, sell that idea to LPs to raise more money, etc etc. I mean my guy, by the time your shitty investment gets realized you've probably raised at least 2 funds by now and are eating mgt fees. Worse comes to worst? Flip that PortCo from Fund I to Fund III, lock in your 2.5x and your carry, and keep holding. By god it's all a Ponzi scheme if you think about it, but again, it eez what it eez

Incoming 2022 summer MF associate - this is incredibly helpful and much appreciated. Mind if I PM you?

Sure but we both Anon? I don't post nearly enough to know how to PM when you're Anon

 

I am at a PE Fund of Fund doing co-investments and I fully agree with this.

There have been times when the PE fund will bring us a shitty deal and the MD wants to co-invest bc of some non-rational factor. Really annoying! When I started I was given the responsibility of overlooking a slice of our co-invest portfolio. Almost 80% of them have been underperforming for the last 2 years and it's really annoying watching PE funds avoided through questions and giving us made-up numbers.

The only thing I cant complain about is working less than PE fund Associates.

To the OP,  in case it matters to you, we understand that it's not the Associate's fault.

On flipping the PortCo from Fund I to Fund III, I can confirm this. I recently did an internal analysis and we have seen almost 80% increase in "Fund I to Fund III" type deals at cray valuations since late 2020.

 

Too good buddy lol. One question though - mind listing pros and cons of staying in IB Vs PE? Been having to go through this decision and was actually told the hours aren't 'always' better in PE (sometimes worse even on average esp at bigger funds) and dependent on the fund ur technically getting paid more in IB these days until maybe carry kicks in, which is a separate convo in itself. Just curious to hear ur opinion

 
curiousgeorge79

Regarding point #6, is that true for M-7 and T-15 as well?

OP here (turned off anon).

In my experience, no. H/S are just a different breed completely - not only is it so much more competitive, they tend to look for fundamentally different things than the rest of the M7. You end up seeing tons of MM PE people going to Wharton, and then a smattering of the other M7s. But a lot of times it's self-selection...many people who do HSW or bust end up going to W or not to B School at all, even if they get into another top school.

 

Keep in mind, you were supportive of this deal, but wanted to proactively flag the gating items – you were truly a value-added bottom-of-the-totem pole team member

This is so true and so important. Half of getting promoted is politics and partners remember when you were the junior guy on a deal team barfing on their deal and they will absolutely hold grudges. 

 

100% yes. It's like pulling teeth speaking to a Principal or something where we both agree a deal is shit and then during a bigger meeting, somehow it's a "great, really interesting opportunity but we have to do a lot more work to get our heads around it." I get it, it's just how things are done, but my god is it annoying as fuck

 

If recruiting for a finance role (fp&a/corp fin) for a portco directly sounds like several things to research are important:

1) style of PE investor. To your last point, is it likely that all of them will usually be stressed and make life a pain? Or is it fine to work for eg Apollo owned portco as long as:

2) the company is performing well, especially above the investment thesis and you know money has been taken off the table via dividend recaps / the EBITDA has grown enough that you simply know it will be a good IRR...or will they still make your life hell?

3) assuming above , are div recaps also potentially source of concern as company now saddled with more debt, PE firm might be ok to let them fail since they made their return already?

Ive always wanted to work in PE operations (performance monitoring / reporting) or directly for PortCo but your post gives cause for concern!

Thanks!

 

2) the company is performing well, especially above the investment thesis and you know money has been taken off the table via dividend recaps / the EBITDA has grown enough that you simply know it will be a good IRR...or will they still make your life hell?

3) assuming above , are div recaps also potentially source of concern as company now saddled with more debt, PE firm might be ok to let them fail since they made their return already?

Ive always wanted to work in PE operations (performance monitoring / reporting) or directly for PortCo but your post gives cause for concern!

Thanks!

2 - Just gotta do ya fucking DD my guy. Many Ops ppl are from consulting that come into a portco to fix shit up. Do whatever you can to assess the success at a Company, and do your DD on the sponsor. A growth-thesis driven firm will try to find ways to put in systems that will help scale, and the value or cashflow-driven firms will have you find ways to keep operations tight while firing ppl.

Also, hardos will make ur life hard whether or not a PortCo is doing well. I've had a partner of a super well-performing investment come up to me and want to analyze additional PortCo opportunities because they're "interesting" (hint: they're dilutive, but might as well investigate)

3 - Divy recaps are fine - unless you bought in at a disgustingly low multiple, most PE funds must position their PortCo for a sale - that means not running it into bankruptcy. Think about the multiples these days - when you see what sponsors are buying at vs. FCF, you'll realize how reliant a fucker is to flip their company

 

Many of your points resonate strongly. Pros and cons to every investing seat, just have to decide which pros mean a lot to you and which cons you can deal with the most. I did the classic IB (can't wait to get into PE fuck this) ->PE (damn turns out this sucks too) ->MBA (why tf is everyone trying to work at McK lol).

You can only kick the can down the road for so long. At some point you really need to soul search and figure out: what do I actually want to do for the next 30 years of my life?

Will say- PE is a great education. Definitely don't regret it

 

Because a) they don’t know what they actually want to do and consulting probably the best way to kick the can down the road, b) it’s one of the few roles actually open to career switchers, and c) they get sucked into the “prestige.” Not talking about the PE crowd, btw. But McK is the single biggest employer at my school

I pivoted to investment management. Autonomy, feeling like a true investor rather than a cog in a deployment machine, and control over my schedule / WLB were the big pros over PE. Cons were gave up a little bit of comp, a little bit of name brand, and the headwinds in the active management space

Again, it’s all about being honest with yourself. What actually makes you feel fulfilled?