Stories of What Happens to People when PE Deals Perform Poorly
Please share any stories of what has happened to deal team members presiding over very bad deals that embarrass their firm. What do we think happens, for example, to the deal team members who presided over BlackRock's $600m investment in Alacrity that just got completely wiped out? Does word get around the industry of who was involved and make it difficult to hire them afterwards? When senior people's chance to receive large carry distributions disappears, do they just leave the firm and someone else has to clean up the mess?
Recognize that I'm not answering your full question, but there's generally only reputational damage for the MD(s) who led the deal. Mid-levels (VP/SA) and associates often either weren't around for the initial underwriting or were too junior to influence the outcome, so they're not typically blamed for a bad deal (at least not from a broader resume perspective).
For the MD/senior individual(s), it probably depends on a number of factors (one bad deal versus personal history of multiple bad investments, what actually went wrong (bad luck / macro impact versus poor diligence or silly mistakes), how bad the deal(s) ended up (1x versus full loss), the size of the check / external visibility of the deal, etc.
On your last question, it also depends. If the person gets fired because their investments were so bad, then yes, other teammembers need to clean-up their mess and manage/salvage the investments. The person who left will obviously only get carry that they vested (based on vesting timing and/or deal-by-deal terms).
I'm sure others have anecdotal stories. Recognize I only shared general commentary.
@Vista on plurasight
Once you hit a level of seniority heads do roll with bad transactions.
I heard of an AKKR director or something getting axed after 12 years there because his investment did poorly. In a sense you do kind of deserve it, but there’s no room for error and macro events can fuck what normally would have been a good investment.
As they say, you’re only as good as your last deal, and it’s a dog eat dog world. Someone needs to take the fall (might be me someday so I say this lightly and sadly). If PE firms will fuck their creditors and rip IP away to save a buck, they’ll certainly fire a subordinate to save face.
^ PE people are great at moving blame around. If operations get fkd, blame the ops team. If no deals, BD is messing up. Bad underwrite? Mid-level messed up
Yea - sometimes I get the impression it's all a facetime farce with everyone pointing fingers to try and last the longest (which inevitably means a higher portion of the carry pool).
Jim Momatazee somehow found a way to fail upward.
What's the story with him / his deals?
Bankruptcies / failed businesses while at KKR: Envision, GenesisCare, and Air Medical.
Started his own fund, Patient Square Capital. Currently raising a 2nd fund around $4B. He bought some other KKR mid-senior guys with him (investment and ops team). I have no clue how performance is doing but I know one of their portcos is trying to undergo a turnaround and is at a risk of being another failed business.
.
.
I'd say similar to when sport coaches bomb out. Take the NFL, you get hired as a head coach but you also, inherit a team you didn't put together, and have to work with management who may also be idiots. Some coaches are straight up idiots themselves, someone like Urban Meyer when he coached the Jags, and other coaches are just in bad situations. So in investing, outside of business people may look at it as a lot of money lost, but other investors understand it from in the know. Take Melvin Capital during gamestop, the guys in that fund would probably get rehired because they made "sound" investing takes, just didn't work out.
Disagree. The only thing that matters is results. Made money due to dumb f’ing luck and some strategic that paid a stupid multiple? Good for you. That’s credit. Lost everything due to an idiosyncratic event (eg COVID) - too bad, you still have a donut next to your name.
The reality in PE is results (real or fake) at the end of the day speak. No LP is doing enough work to uncover why a great deal was great or why a shitty deal sucked.
there’s a very strong argument most of what you see in the industry is levered beta - PE is only better than HF insofar as the marks are private so there’s “less volatility”
What PE and HF and the entire “alternatives” industry is really good at undeniably is transferring value from LPs to the GPs.
Agreed, at the end of the day it is all about making money. Back to my NFL example, it's like Bill Belichick, he won games, now he can coach anywhere he wants. Someone may point and say with Tom Brady he had a middling record, but he had Tom Brady and they did win. I was thinking more Robert Saleh with the Jets situation, he got fired by the Jets and hired by the Packers as a special assistant; I think it's understood the Jets are a dumpster fire, so maybe he has some slack, doesn't mean he walks into another head coaching job.
So, at the end of the day, if you make money you can go where ever you want.
Well that fund is shutting down anyway and it's a small team so everything went through the top two guys probably. They do have like 3 huge winners e.g. the creed deal and couple others so overall I think that fund will return 2.5x+ but they're still shutting down.. such is life
Blank
Expedita harum esse tempora sed iusto. Ratione beatae nesciunt aut. Debitis ratione doloremque rem quis est id ea.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...