Sinking ship
Hi fellow Monkeys,
Reaching out to this community because I am facing a challenging situation and could really use some advice.
A bit about myself. Have been at my current LMM shop for about 4 years, joined as an Asso and been promoted to VP a bit more than a year ago. Culture is pretty good, as usual WLB is highly depends on whether you are on a live deal but otherwise it is decent. Total comp is probably slightly below market. The fund had a pretty good ride over the last 10-15 years, realising top quartile returns with very healthy carried interest, making multi millionaires few folks here (spoiler alert, not one of them).
However, the performance on the current vintages has been pretty precarious due to poor investment decisions on few assets before I joined (thankfully I do not cover any of those companies). Over the last 18 months, the situation has worsen exacerbated by rising interest rates, inflation (you all know the story), culture is becoming slightly toxic with a lot of gossips, motivation is down big time, very poor fundraising which has not been helped with a couple of instrumental IR individuals leaving and now rumours of restructuring which will most likely lead to a number of people leaving. Bottom line, the prospects are not great and I am starting to wonder whether the top management is not looking at a 'run-off' case before bringing down the curtain.
I have been told that I will be fine and part of the 'future of the firm' but for obvious reasons I am not entirely sure whether I should stay. I always try to see the silver lining even in a downside case which could be a great opportunity to potentially seek better economics or be part of something fresh with new management and getting rid of the bad apples.
Has anyone been through this on the buy-side? Any advice?
Thanks
You should have started looking for other opportunities yesterday.
What's the harm in seeing what else is out there?
It sounds like you may already know the answer, which is to likely head for the exit. A few investments treading water is one thing but it sounds like investors have fundamentally lost faith in the senior team.
I don’t know your specific situation but it sounds like they’re telling you what you want to hear so you also don’t jump ship. It’s a tough spot to be in but there isn’t really much value in gaining greater economics from a shrinking pie with even greater uncertainty to hitting your return threshold in the future. As you mentioned, many other LMM firms are facing this same situation. I wouldn’t put too much stock in the “getting rid of bad apples” and shaking up firm leadership path forward. It’s hard for a smaller firm to shake the reputation of its senior team, either from departures or natural succession. If a firm is able to do so, it often takes years if not decades to reach the same level of fundraising momentum (or it requires them to essentially spin out and start over).
Thanks, very helpful.
I don't know whether investors lost faith in the senior team but I personally did, especially the founding team. From my little and remote perspective, they give me the impression of having checked out and just milking what's left which I found infuriating (but hey, can I blame them?). Interestingly, the younger generation of MDs (less than a handful) and the CIO are still very much trying but I can feel a sense of frustration when talking with them highlighting quite well what you said in your message "I wouldn’t put too much stock in the “getting rid of bad apples” and shaking up firm leadership path forward. It’s hard for a smaller firm to shake the reputation of its senior team, either from departures or natural succession".
On paper the last vintage has a great expected return but carried is not expected until 2027 (have about $2m DAW) which is a long time to wait and a bet given there is no guarantee. Coming from a low/middle class background so it's a lot of money but probably not not a great payout in the grand scheme of things.
Pre-emptively, I have reached out to few HH in my vertical a month ago but market is super soft at the VP level. Funds either need very junior VPs or Senior Asso. I even told the HH that I was ready to go back to junior VP but he did not bite. In such situation, it is usually the best people leaving first and we have a good bunch of Asso willing to put the hours and committed. However, I am slightly worried that their patience is running thin at the moment exposing us even more in the future if they start jumping ship (can't blame them either, I would have probably jumped 6 months ago if I were still an Asso).
Bump. In a similar situation although slightly earlier in the lifecycle, kinda torn up on what to do. In a T2/t3 city so not a ton of PE opportunity otherwise.
From what I hear, other local funds are struggling too, so what’s the use lateraling if everyone is in the same boat… just from reading this forum it doesn’t sound like firms are performing very well in general right now, and economically things aren’t even that bad.
Start interviewing now so it doesn’t become a situation that you can’t control in the future. Private equity firms are not companies in the traditional sense - there’s no capex, no IP, no real “know-how” - there’s really only human capital and trust. And from the description the fund has started losing both (these things are incredibly hard to turn around)
I agree with your comments, the industry relies on trust and human capital and once the chain starts breaking, it is hard to turnaround. I still have some hope in my MDs and the CIO but equally cautious as I don't want to get caught by surprise. Interviewing is easier said than done as market is quite soft at my level and the very few roles available are at a more junior level or are targeted MF profiles.
Only way is to lateral with another LMM or a MM fund but seems like a lot are also struggling. A bit comforting to notice that I am actually not the only one in this boat.
EDIT: How would it be seen going back to IBD (as a worse case scenario)?
Is there a world where your younger MDs/CIO break off and form their own shop? Obviously hard to just ask this because if they were and wanted you to come along they'd ask (or they're not thinking about it or are in the early innings of it). Something else to consider if you really like that group of people and you get the sense frustrations are growing outside of the senior MDs/MPs.
Same boat. So much negative EBITDA across the portfolio… yes, negative
So like 20% decline in ebitda?
Are we talking about declines in EBITDA or nominally negative EBITDA?
Probably no difference. A 20% EBiTDA decline crushes liquidity forcing potential restructuring, or will hit a maturity wall, and if it survives all that, between lower EBITDA and multiple contraction (good luck convincing a buyer to pay what you paid on a multiple basis after demonstrating 20% decline), the equity is significantly impaired and/or flushed
Was in a similar situation - held onto hopes / believed in leadership that firm's trajectory would change but never panned out and got caught in a wave of layoffs. Would really recruit in earnest versus just relying on HH or try to gauge if you can wait out the job mkt to recover at your current firm if you want to stay in PE (job mkt is pretty abysmal for VP level right now)
Thanks for the feedback.
That's my biggest worry, holding onto hopes that don't materialise because it's difficult to shake up the structure which ultimately will lead to this vicious circle of further departures of good people, impossibility of replacing them because word spreads out fast and having to keep the wrong people in the roster.
Did you find a new role? Agreed with your sentiment, VP recruiting is awful at the moment.
No haven’t found anything yet and not sure when PE job market will recover…market is brutal and wish I had looked a few years ago when things were so different
Bro get out asap
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