Should I go into PE with a paycut?
Currently a 3rd year analyst at a solid MM, I can easily move to a BB or EB next year as an associate and make ~$350k. At the same time, I'm also recruiting for buy-side mainly targeting growth equity or LMM/MM buyout funds. The pay seems to be around ~$250k cash per some reports that I have been seeing. The pay seems a lot lower than IB and the hours only seem to be slightly better. Is it even worth it for me to pursue buyside? Everyone talks about co-invest or carry, but most of them don't even materialize until 10 years down my career.
I would say yes, since work life balance will be better (ideally) and future comp potential is much higher. All a personal choice though- does PE excite you? If not I’d stay in banking.
Wouldn't count on this
Well he mentioned he’s looking at LMM/MM fund, which in my experience has more reasonable hours than MM banking but you’re right, not a given.
If you like investing, you should 100% take the paycut and go. Don't be golden handcuffed and stay in IB because you make more today. But again, it depends on the shop that you are going to. You should be genuinely interested in their strategy, deals they have done, and the people that you may be working with. Don't go for the sake of going.
If you are not interested/passionate in investing though, then it's a different story...
How do you know if you like investing? PE investing is quite different than what most people can experience themselves (picking stocks etc). I understand building a thesis but the investment process isn’t something you can experience if not working in PE.
Whether you like PE or not, working in PE will at least get you a step closer to doing the type of investing that you like. A hell lot closer than staying on the sell side.
One of the key things in investing is asking the right questions, underwriting risks and making (and questioning) assumptions, no matter what kind of investing you do/like...and unfortunately, I don't know think IB provides you with the kind of environment that allows you to develop critical thinking. The analytical rigor is contextually at a different level, because you (or your firm) are taking risk.
If you do it for a year or two and don't like it, you can always try something else (HF/RE/Credit/VC, etc.). I think there are always options.
And lastly, if you really don't care for investing much. You can always go back to IB.
I think it's better option value to give it a shot than staying put.
I would caution you to not run rate comp in a highly cyclical industry from its peak year ever and compare to an industry with 10 year contracts that guarantee a large portion of revenue
This. IB comp will 100% be down from the crazy numbers last year... first year associates aren't going to be making $350k every year just because it happened once.
While PE hasn't quite raised base to compete with IB yet, that doesn't mean that PE will be a paycut over the course of your career - quite the opposite in most cases.
The bigger question here is whether you actually want to do sellside or buyside. Comparing differences in comp at a junior level when these are both high-earning careers is not a good way to plan your life
What's the general outlook for PE in the next ~10 years? I understand that there's a lot of dry powder, but also, aren't returns very sensitive to interest rates especially since much of the returns are derived from multiple expansion rather than operational improvements?
This question gets asked repeatedly in this sub and ultimately it comes down to what interests you. There are drawbacks in either option if you just do it for the money instead of thinking of what aligns best with your career goals
I) Banking - Stay as an associate/VP make 'good' money (mid-six-figures) but ultimately burn out 5-6 years and go into corporate dev taking a ~50% haircut wishing you went into PE as your friends start becoming VP/Principals at PE funds and start slowly getting carry allocations that will materialize in 3-5 years
ii) PE - Move to PE and take a 20-30% compared to banking peers to chase the elusive 'carry' but ultimately burn out by the time you hit VP and move out of the industry into corporate dev and take a 30-40% haircut while wishing you just did banking instead to maximize your early-career earnings
Both (I) and (II) are specific instances (and rather pessimistic scenarios) but hope this highlights that there really is no 'right' answer
Disagree. If you’re miserable and doing it just for the money then sure. If if it’s like the 5th or 6th thing on your list of things you’d wanna do, you have above average intelligence, you don’t mind working hard, and you love money, you’ll kill it in this industry
All great advice, but here's what I have a hard time rationalizing. I obviously understand that IB is just a glorified W-2 and in order to make real money, you need to be investing or getting carrys. In the next 5 years, I won't be collecting any co-invest or carry for most funds, because it's not a guarantee that there will be a senior associate promo on the table. Therefore, my total earning in the next 5 years from IB and PE will probably be more along the lines of a 35-40% cut, since I'm not going to have any looks from any MF or UMM funds. I will be lucky to get into a fund along the lines of Riverside, Trive capital, Sun Capital or Comvest at best. From my understanding hours aren't going to be that much lighter and I came from an extreme non-target meaning I will probably be the 1st kid in my school history to make it into a PE gig. Chances of me making a partner are going to be light or at least pretty hard regardless. My initial plan was to get an MBA at the 3rd associate or 1st year VP level in IB, then transfer to a buy-side gig. This way at least I'm saving up good money and probably have a net worth in the $2-3MM if I invest right. I have already accumulated ~$500k in net worth over the 4 years I have been in banking (lateral from credit to IB). I think I can continue producing 20-30% return YOY, given the recent drop in the market and a potential recession.
Depends on a couple of different things. How much you like/dislike banking, how interested/curious you are about PE, and what you ultimately want/care about in your life. In the past, I think PE firms had a more solid value prop for junior bankers. It was more prestigious, more money, better lifestyle, and theoretically more interesting work. Nowadays, the short term compensation is really not there for PE. With the recent comp increases in banking, you're going to almost certainly outearn a comparable PE associate position, with the exception of some of the large funds. With the increased competition in PE, the work life balanced has suffered across the board, and the "prestige" and work are really just subjective metrics.
So to me, just getting into PE for the sake of doing it might not be the best choice for you. If you're happy in banking, making good money, and are ok with the lifestyle, why not just ride the job up to the top. If you did take a PE role, I'd be pretty specific on what you want to do and the type of people you want to work for. Maybe you want to focus on a specific industry/vertical or you've sat across the table from a sponsor you really respect and want to learn from some of the investors there. Or perhaps is geo/lifestyle focused. Maybe you want to be in ... Austin or Denver so the pay decrease balances out with a low COL. If I were you, I'd also focus on a place where I'm not going to be 2 and outed. Outside of the big firms that are basically going to guarantee you admission to H/S, I think it's increasingly difficult for no name MM PE firms to get away with paying below market, grinding people down, and then kicking them out after 2 years. Junior bankers will continue to fill those roles, but to me, those are really not worth it from a lifestyle perspective.
So short answer, I wouldn't pursue PE at all costs. With that said, I do think it's worth looking into if you can find what you want. You'll always be able to get back into banking, whereas with PE the window to get in is relatively short. Carried interest might not materialize, but co-invest definitely can, and I've know folks (including myself) who did a couple of years in PE and were cashing checks for years after I left the firm. Think of it this way. You put $50k into a couple of deals while you're in PE and they all 3x in 3-5 years. One of those a year makes up for the cash difference between PE and banking. Obviously this isn't' something you can count on, but if you combine that potential upside with a new learning experience and hopefully a better lifestyle, it might be worth thinking about.
Anyways, that's just some food for thought for you.
This is super helpful. Do co-invest get repaid in 3-5 years? I guess I will be putting in $50-100k out of pocket or is the firm going to extend me some sort of 0% loan?
Just to add, is the co-invest and carry interest both taxed at capital gain tax of 15%?
do whichever one you enjoy more. at a certain level of compensation, each additional dollar you make is less and less useful, and actually enjoying your position is marginally more valuable. you're at that level, seemingly
I went through a similar decision recently so I’ll share my 2 cents. For background, I started in CB for 2 years as an analyst and did MM IB for a little less than 2 years as an analyst as well. I was about to be promoted to associate when I left for PE this year. I went through the same decision making between staying in IB for the higher pay or leaving for LMM PE. It’s only been 2 months since I left, but I am SIGNIFICANTLY happier and healthier than I was when I was in IB.
For me, the extra $50k in gross salary was not worth the shit I was eating in banking. I actually get to see the sun, golf on weekends, see friends and family. On top of that, I don’t work with insane neurotic assholes who make it their mission to ruin my wlb which unfortunately in my opinion makes a large portion of senior bankers (I mean think about it, you have to be slightly insane / bitter to stick it out for 10+ years in banking working miserable hours and eating your senior bankers shit so then you turn into that yourself). Anyways I’m off topic...
I personally wouldn’t make a decision off of $35k net of tax in the short-term especially when it’s not like you’re going to be broke in PE. IB pay will come down after a record year so the pay different isn’t quite as large as you think in my opinion.
That’s just stream of consciousness but personally I would make the switch 10x over. Ultimately the decision is yours, and will come down to what you find interesting and are prioritizing in life right now. Part of the switch for me was a change in cities, and moved to my girlfriends hometown and close to where I went to college so that has been great for us.
anyways, good luck
It's not a $50K difference. Average 1st-year associate pay across the street is $350K vs $200-250k for LMM / MM PE associates. The few firms that I'm eyeing are also working 70 hours based on employee reviews. Am I missing out on anything for comps?
Average is not $350k for first year Asso… see comment above on not using 2021 as a benchmark. Looking at 2019-2020 it’s going to be closer to $300k…
How was it switching from cb to ib? I just found out my placement for my summer internship and it seems to be not as front facing as I would’ve hoped.
Just a couple thoughts.. if you moved to PE and didn’t like it, could you not move back to IB later? This PE firm may not have ideal pay / hours, but would give you exits to better PE firms that you otherwise would not have access to in IB? You mentioned wanting to go to b-school—if you plan to go after a year or two, then the pay cut you’re taking is not permanent; it’s just for a couple years (I rationalized a slightly lower buyside job this way and figured it gave me a better shot at b-school). If you want to move to PE after b-school, would you have equal opportunities coming from only IB vs having PE experience?
Yeah fair points, so I'm referring to this link on buyside comp. https://mergersandinquisitions.com/private-equity-career-path/
I believe PE comp typically doesn't exceed IB comp until making VP or Principal? That's almost 10 years down the line for me, therefore over that 10 years after accounting for the time value of money, I'm trying to figure out if it's really worth it to move to PE. Obviously, cash now is materialized and potential pay in 10 years has a lot of uncertainty. Love to gauge what people's thoughts are. On your second point, I just don' think I will ever make it into an MF given the background I see for MF. I'm nowhere close. Also, I see a lot of PE associates come back just to become associates, I just don't know if it's worth it, at least I haven't seen PE associates going straight into VP roles at BB or EB versus if I just stick out as IB associate for 3 years, it's almost a guarantee VP promo as long as I don't suck.
If you only care about money and can stomach IB, keep doing it. There’s a good chance you won’t get carry or it won’t materialize for a long time in PE. IB will always be higher if you don’t factor in carry
You guys are seriously undercutting the comp differential here. $350K at an EB (which OP said he could swing) is very much pre-pay raise levels. There's been multiple threads (substantiated by everyone on the street) with the top EB's paying $400-$500K. Like, I literally know people who have been communicated $300K+ bonus on top of base. Sure, it'll definitely go down, but coupled with the base increases, it's inherently going to be difficult for banks to walk back $150K of comp -- maybe 75K less than prior year. Assuming 175-200K base (conservative), 100% bonus is at least $350-400K (and top buckets at EB should be getting 100% -- last year was an exception as it was substantially higher).
Granted, I say this as a guy who joined PE, realized I hated it, and am now bummed out at missing out on absurd pay increases.
Are you trying to go back to banking? How is that process going, if so? If not, what’s holding you back?
Why don’t you like PE? What’s different about your role from what you thought it was going to be like when you made the transition?
Some food for thought below. I get the impression that you came from a non-traditional background, are being offered serious money and can't justify passing it up. Most people in this thread are viewing this from a short-term (<= 5 year) perspective. Try to think beyond as well.
What is your end-goal? Work till 50, enjoy yourself / what you do and do reasonably well? Or maximize net worth at age 30-35 and look to exit?
Do you know what you like doing? The jobs change the older you get. When you are 33-35, would you rather be in IB or PE? Can you generate business (repeatedly) as a banker - if not, does your higher income stream have an earlier fuse? Or, you do PE / stay in some other buyside role - hours get better (over time) and you have a lower income stream with a longer, but still decent tail? If you can't generate business, does the latter provide higher lifetime income? Ignoring carry for now as long-term PE returns are a different topic.
Are you missing looking at the forest for the trees. 3-5 years of extra hours in a 30 year career don't mean much (applies to both IB and PE). What other value can you add as 24-25 year old. You don't generate revenue so working hard is table stakes.
If you don't know what you enjoy doing more - you need to know you will absolutely not want to be an investor. Can't look back in 5 years (when times may be different in banking) and say I wish I took the buyside job. Not saying that will be the case - but goes back to my first point - what is your end-game (personal and professional)? In a long term career, a few hundred grand will be a rounding error. You won't be poor or starving in either job, and will likely make your money in the later years. Where can you have a higher risk-adjusted probability of making it long-term? And that will be influenced by where you are happier / be able to keep rising long term.
You will notice a lot of question marks above. It's because it doesn't matter what I or anyone else says. It's all about your views on these questions - no right answer. Nobody can answer it for you - hope this helps with framing it from a long-term perspective.
Is MM/LMM something you want to do? If you worry about the payout why not spend a year or two at BB/EB then move to a UMM/MF or GEs like GA, insight, or summit.
better WLB lmfao you guys crack me up.
A couple of points to touch on and clarification on comps.
- I'm at an average MM think (Truist, RJ, Piper) and comp is around $400k for last year as an associate, I'm expecting comps to be close to $350k this year. But, I can easily lateral to BB or EB which pays more, or go for LMM/MM PE next year.
- I'm obviously trying to gauge the WSO community to help me make the right decision on whether to move to PE. Here's what I would like people to shed some light on.
(I) Given my non-target background, do I really have a shot at moving up the PE ladder? It's much easier to move up the corporate ladder in IB because there are always a lot of turnovers and frankly it seems like as long as you don't suck and work at a reputable brand, you will always land clients. As the old saying goes, no one gets fired for using GS. Coming back to the question, what are people's takes on how hard it is to move up the PE ladder if you're just an average joe?
(II) Now on the money aspect, people keep saying it's just a matter of a few hundred grand but this is so not true. Assuming you're at a PE that requires MBA then you're looking at ~$1MM of opportunity cost already. And, plus the $100k pay difference over the course of 6 years? Plus, if you don't like PE or can't move up in PE, you're coming back to become IB associate all over again and looking at the 2 years of time wasted and the pay difference there? Now, I'm all for long-term pay, but I also need to be realistic with myself on whether this is a good investment?
(III) Obviously, the grass is always greener on the other side, but I speak with some of my friends at some of the top ROI generating funds and the hours are just on par with banking. Can someone explain to me how much more free time do you truly get in PE?
(I) I don't know why you keep bringing up your non-traditional background. My opinion is that once you get into a PE, it depends on your abilities. Technical skills, sharpness, execution and project management skills at the junior levels, and sourcing proprietarily, negotiating, getting backing of the IC and winning deals (that make money) at the senior levels. People look at the now, and look at what you can do. No one is looking at your past, and no one cares that your background was not traditional. If you are an average Joe that produces, then you will move up the ladder. If you are an average Joe who has average performance, then you will plateau at some point. You eat what you kill. And when you kill for the team, or the firm, people notice.
(II) No comment.
(III) LMM/MM PE also can have varying ranges in terms of workload or WLB. It really depends on the style of the firm, the team you work on, and the style of the principal(s)/MD(s) that you work under. Growth and buyout will also be quite different. If your MD hasn't won a single deal LTM, and your fund is bidding at everything and anything because you need to deploy, you can pretty much expect to never stop, and forget about free time. Large generalization here, but growth in general tends to have better hours than buyout (but growth can have long hours too). The underwriting is just different when you need to lever up. But, if you love the game, even when you become more senior and have manpower underneath you, you will still naturally work long hours. The killers in the PE business are absolutely hooked to the game. They are absolutely obsessed with sourcing unique shit (when there is no deal), constantly questioning assumptions when underwriting to assure they arrive at the right decision and price, and obviously in full deal-mode when bidding/negotiating/executing a deal. The game consumes them. Frankly, most of them are workaholics. If you find yourself thinking much about free time, whilst you may have the relevant experience for entering PE, maybe, PE isn't for you and you won't make it far up the ladder. Let's forget about MFs for now, even at the LMM and MM levels...it's really freaking competitive right now with the amount of dry powder in the private markets (whether growth or buyout).
My general view is that although I don't know you, but after reading your multiple posts on this thread and looking at the questions you ask, my gut tells me you are not passionate about a career in PE, in which case, you are better off staying in IB. There will definitely be more stability and predictability. You don't need to love IB to become a senior banker. But, you need to live and breathe PE in order to make it to MD or Partner level, and not only get there, but to literally generate returns for the firms/ funds. Comp aside, that is probably the single largest difference between the two in terms of career advancement (iny opinion). You can definitely afford to be more average and still survive as a senior banker. But, even getting to the senior levels in IB, you need to impress and win clients over. In PE though, I haven't seen that work. You need to be able to source and win deals, AND the deals need to return decently. It's definitely different than the nature of IB, where you make a fee on a transaction, and you kiss the client goodbye.
You are better off staying in banking. PE is a risk business, and it doesn't sound like you have a large risk-taking appetite.
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