The PE career path
I'm trying to get a better gauge of the careers in and out of IB. While the 2 year stint in PE out of IB seems very lucrative/prestigious blah blah, it seems like most shops kick you out after 2 years and you're expected to go to bschool. Some questions surrounding this path:
1. What kind of shops allow you to continue in PE beyond 2 years, and how does that career progression look?
2. For the 2 IB/2 PE/ 2 bschool kids, what percentage of kids who want to come back to PE actually successfully make it back? Obviously there much fewer principals than analysts at PE firms, but then again, many ex-PE analysts don't want to stay in PE after bschool.
3. As a matter of fact, I hear that a lot of ex-PE kids who can't make it back to PE after b school end up back in IB, which is unfortunate because they would be starting as 1st year associates again whereas their counterparts who stayed in IB are now almost VPs and have not paid for bschool AND made money for 2 years along the way (of course they don't have the benefit of the 2 year bschool vacation and the degree/connections). If this is the case, doesn't it make the "IB-for exit opportunities" thing a lot less attractive? To continue my rambling, if you're going to do IB/PE just to go into bschool and do not go back to IB/PE after bschool, why not go into something that will give you a broader/less soul crushing exposure, similar exit opps, and a better shot at bschool like consulting/start up?
4. Let's say you do "make it" back to PE after bschool. But let's say your fund blows up or you want to do something else. What are you options like out of PE? Can you go back to IB or go on to corp dev?
5. After writing this post, the merits of a career in sales/trading becomes a little more attractive. You can start in trading and make your way around the street/HFs working 50 hour weeks/no weekends along the way. Sure you are "pidgeon-holed" but it seems like any career will pidgeonhole you at some point, and only when you specialize that much does the real money start flowing in. Unfortunately, I don't find trading that interesting, and I am truly envious of those who have the market/trading-bug. See my post below for why I am leaving sell side trading:
//www.wallstreetoasis.com/forums/moving-from-bb-rates-trading-to-hedge-fu…
Take this with a grain of salt, as it is all based on what I've seen with friends/family in PE & Growth Equity
1) It depends on the shop. Larger shops (KKR, Blackstone, etc.) tend to force you to get an MBA, while smaller/mid market shops (HGGC and similar shops) have senior associate roles that are more commonly found and eventually transition into being a Vice President (post MBA role). However, note that the senior associate role is on a case by case basis and is still a "trial period" to see if the partners want to keep you on as a senior team member. Also keep in mind, how many PE associates have you seen or heard of making partner at the shop they started at? As a partner, why would you share the carry/pie unless you absolutely have to?
2) It's much lower than you would think. I have been told less than 15%. This may be attributable to the fact that many individuals don't want to come back and were doing PE simply for the experience. Some shops pay for your B-School, others don't and send you on your way, with a "maybe" left at the table for when you graduate.
3) This does happen. We have seniors at our bank who did PE for a stint. I don't think anybody woke planning for their career to work out that way. The "career path" concept is much more subjective that people think. There is no clear cut path. As far as connections for the associates who stayed in banking are concerned, I would be shocked if their connections didn't rival those of guys coming out of B-School by the end of the associate stint. If they don't, it's either because they didn't make an effort or they are at a bank that limits their exposure to the outside world.
4) This depends entirely on your experience and your ability to tell your story and why you bring value to a team. There are opportunities in all of the above mentioned segments.
5) I can't really speak to the trading comment. However, I agree with the specialization. Sooner or later, we all specialize, but it doesn't necessarily mean you are pigeon-holed. If your skills and relationships bring value, I think you can go pretty much wherever you want. E.g., I've seen M&A bankers become Hedge-Fund partners.
1) It tends to be MM shops that allow you stay without an MBA. The MF model is really formulaic; structured processes for recruiting, intake, and exit. MM funds are less rigid; if someone excellent comes through and by their second year is already functioning effectively as a Vice President, the partners may have some candid conversations with that guy about his long-term interests.
They may work out a partner-track role for him that doesn't force him to leave for b-school. The partners are happy because they effectively got a two-year interview for the VP role from the associate, they don't have to spend time interviewing MBA students, and they have a guy who's going to have more familiarity with the portfolio than an MBA grad who has the exact same work experience (two years in banking and two in PE at another fund) but is coming out of an MBA program.
Apollo is one exception here. They run a four-year associate position. The goal is to get you to skip the MBA. Few have made it all the way through the four years. The culture is notoriously tough, both in terms of attitude and lifestyle. A lot of guys do end up taking the b-school route; others walk into a role at a top-flight HF around the two-year mark.
2) I don't think it's 15% as Gotham's Reckoning said. You can look on each school's website and find granular reports on the composition of each incoming class as well as placement info for each graduating class. For H/S/W, it's usually something like 12-18% of the class came from PE/VC prior to school, and 9-15% go into PE/VC afterward.
From that you can see that it's true, there are fewer post-MBA seats than candidates coming in with PE experience. This makes sense: post-MBA roles are at minimum implicitly partner-track (many explicitly are). Investment management is a top-heavy industry; the best talent tends to open their own shops, and they also tend to stick around for a long time afterward.
If you hung out your own shingle at, say, 52, you're probably not giving up Managing Partner status until you're north of 70. That's a lot of associate classes that will rotate beneath you, and you only need so many VPs or Principals between you and them.
For associates then, it's really often a matter of fortunate timing. If a fund has a Principal getting promoted to partner or had a VP or Principal leave for a competitor, step into an operating role at a portfolio company, or pursue something outside of the industry, there will be a mid-senior role open. That's typically when the fund is in the market for a post-MBA hire.
Sometimes you see the process move atypically fast. One of those scenarios mentioned above occurs: say, a Principal gets offered a once in a lifetime role at a family office and takes it. The fund may engage a headhunter and say "find me the best candidate graduating this year from HBS or Wharton with banking experience at GS or MS and at least two years of PE experience". Whatever guy ends up getting that role lucked out just for fitting the profile and having timing dump the chance in his lap.
What happens more typically is that these mid-senior guys making moves put plans into place with lots of lead time. Often, someone who's four, eight, or however many years deep at a firm like this has zero interest in destroying relationships or credibility with such powerful people. If they did want to move (to a portfolio company, out of industry, or wherever), it's probably broached with the partners well in advance and couched in really hypothetical language.
This lets all parties work out a mutually beneficial and satisfactory solution. It's also the basis for the fund choosing to go on-campus, recruit for a summer associate role, have that MBA student complete their internship, and extend a return offer for nine months later. It's wrapped around a less pressing calendar need to fill a hole they know they'll have based on the scenario I just outlined.
Again, these two lengthy examples are illustrative of non-MF firms; I'm referring to the MM (be they upper or lower) firms that run leaner, do fewer deals, and have dramatically lower turnover. Think of a Lincolnshire, Catterton, or FFL. Top-performing funds (well, Catterton is solid, not top) where you don't see people leaving for an MBA on any set schedule (if at all), where senior leadership has been solidly in place together for decades, and where promotion is almost exclusively internally.
MFs tend to have a more formulaic approach. Recruit, grind, regurgitate, repeat.
3) You're correct; there are some (few, from what I've seen) people who exit to PE after banking, strike out in PE recruiting at school, and return to banking. I'd put that number below 20% (of people with the combo of banking/PE experience). Of that, I'd say half were happy to return to finance and were getting into great seats, and the other half were unhappy but didn't know what else to do.
In that first half I think of a guy who did two years at Wells down south, two years at a lower-MM PE firm also down south, a non-H/S/W M7 MBA, and went to an EB (BX, Lazard, Moelis) after school. He was competent, knew he could execute, and felt he had a clear path to excel as a senior banker. It worked for him.
In that second half I think of a handful of guys I knew. They struggled to think like an investor, and thus as a PE associate really never added any value other than being a (highly qualified and quantitatively competent) body in a seat to handle financial analysis and manage deal processes. That led them to not receiving a soft return offer (as in "go get your MBA and we want you back") and also to them striking out either to get a PE internship while at school or a post-MBA return offer if they got the internship. The golden handcuffs weighed heavily, however, as they had a lifestyle they were used to, a spouse and/or children to take care of, and no creativity or real spark that had not yet been ground out of them by the years in finance.
Your question was 'why not go do consulting, a startup, or something more stimulating'. Many people do. A lot of former bankers and PE guys will take corp-dev roles at a large company. Some will go to a sexy but stable place like Apple or Google. The recruiting there is pretty standardized, and the top b-schools all have healthy relationships with those employers. Other guys will go to a maturing (late-stage but still growing) startup like Flatiron, Jet, Oscar, what-have you. Others will go to financial or strategy roles in industry. I know an H/S/W grad who came out of a top-five banking group and is now at Vice.
It's varied. Everything you just hypothesized (startup, consulting, family office, big-co) all happens; it's just not trumpeted publicly, and certainly not on a forum like this where people masturbate to the mere thought of the holy path of "IBD > PE/HF > MBA > greatness??"
4) See #3 above.
5) Trading is in a structural downturn. Technology is reshaping the need for human involvement in the markets. We saw this a decade ago in equities; it's moved to fixed income as well. Add increased regulation barring prop trading and raising capital ratio requirements and it starts to look ugly. Banks are cutting staff left and right, hundreds at a time. It's hard for the big banks to make money in trading, so the human capital now becomes a cost center.
Nearly every single guy I know in trading has either rotated to a sales-trader, sales coverage, or sales management role (which makes sense; that's where the human touch will still need to remain), moved to the buy-side, added side hustles that they hope get big enough within 2-4 years before their seat dries up and they get cut, or left the industry. Those side hustles have been cool to see. Some are physical small businesses, others are ecommerce, some are a collection of startup investments or advisor roles.
Trading is not an attractive career option, and I put so much emphasis on the structural piece because it's important to understand that this isn't a cyclical downturn (where economic recovery a few years later leads to equal or bigger opportunity than prior to that downturn).