What do you actually care about and why?
A more philosophical question here.
I’m currently recruiting for buyside associate positions after the 2-year banking stint. I've been getting emails from headhunters about firms that I'm interested in and firms that I'm less interested in, but it recently struck me that I'm not really sure what I actually care about when thinking about what opportunities to pursue. Sure, Apollo, BX, etc. are great because of the so-called "MF" title. But what's actually the tangible difference between a firm like that and a firm that has less of a brand name? And why are these firms considered “top-tier” and “megafunds" over firms out there that rival them in both AUM and returns? Just an example for the sake of argument: CD&R is working with about $57bn of AUM, but is considered a top-tier megafund over a firm like HIG, which has just about $58bn. Granted, all of CD&R’s capital goes towards pure buyouts/private equity, so might not be the best example, but I can think of so many similar comparisons.
Maybe AUM isn’t the best way to designate firms as “MFs” or “UMMs” anymore, and that’s why certain firms deserve the classification over others. But what exactly is the criteria? What do people actually use to evaluate firms as places to work?
I have 3 hypotheses, which all don’t really make sense to me.
1. Returns: This forum talks a lot about fund performance/returns, but at least at an associate level, why does this really matter? Most funds don’t allow you to have carry, so the actual performance of the fund matters very little in terms of compensation. And once you get to the point where it does matter (Principal and beyond), isn’t it relatively common to bounce around firms as long as you’re a proven performer?
2. Business School Placement: Also mentioned quite a bit on this forum. Granted, going to HBS or GSB is great for your resume. But it also seems to me like returning to PE after business school is pretty difficult, with no clear-cut path to do so. If PE is what you want to do long-term, does getting an MBA even make sense? Also, I feel like when a business school is evaluating you, there’s no way they see BX/KKR/Apollo on a resume and automatically say “damn, MF? Accept that mf!” (lol) The process has to be much more holistic than that, given that business school admissions officers probably don’t spend their free time trolling WSO for prestige rankings. What’s more, I see placements at HBS and GSB at almost any decently well-known firm I can think of. It doesn’t seem like you’re at any kind of particular disadvantage if you go to a firm that’s slightly “below tier,” especially if you have a stacked profile of extracurriculars, leadership, volunteering, etc.
3. Hedge Fund Placement: This is where I just don’t know enough. It makes sense that you’d want to go to a top-tier hedge fund (if that’s what you want to do) because your comp is pretty directly tied to the performance of the firm. But how much do HFs like Viking and Coatue really care about where you did your associate stint, especially if you’ve complemented it with a solid business school?
All three of the things I’ve listed above are a.) pretty superficial, and b.) come from what I’ve noticed people seem to prioritize on this website. I think these two facts go pretty hand-in-hand.
So, if you’re currently recruiting, or if you’ve gone through the recruitment process already: what do YOU care about, and why?
Seems like this is a personal question only you can answer. I’m in the LMM, so this may bias my answer and be less relevant to MF life, but here is some criteria:
is there an industry (or even a very specific subsegment) you are knowledgeable about and enjoy learning about. Do you want the optionality to eventually work for a strategic in this space? Find a PE firm with a good reputation in that space
Are you a number cruncher that likes structuring deals in the right way or do you have more of a consulting / strategy mindset? This may influence the type of investing you want to do, for example growth vs. distressed
where do you want to live?
what do you look for in a culture and what do you want your work life balance to be? This is probably less relevant for MFs but highly relevant for MM
Do you agree with the investing philosophy of the firm? Based on your limited information on the firm and your experience talking to them, would you give them all your money? This is a hard question coming out of analyst years, but there are differences across firms so I think it matters
Yes, returns matter. If you wanted to learn to shoot free throws, would you learn from Shaq or Steph Curry? You want to learn from the best
do you not know what you want in your life, and you just want to optimize for money and optionality? Go prestige
This is all great stuff, thanks. On the investment philosophy point, how can you gauge this? I realize that a quick look at a firm's website will contain buzzwords that in general tell you what they're looking for in an investment. But for the most part, PE is PE, is it not? Not considering distressed or growth (which are fundamentally different strategies), all private equity firms are just doing the same thing -- buying companies and using leverage to juice up returns. What separates one fund from another, when at the end of the day, it's really all the exact same style of investing?
Difference would be in diligence - for consulting/strategy background, they do deep commerical DD in house + supported by 3rd party advisors into: market size, regulation, business model, fundamental drivers, comp positioning, customer surveys etc. The sector view combined with who has the right to win informs significant part of the investment decision and underwriting (eg. labor supply demand models to determine directionally understand how wages will move, market models etc). Even in underwriting roll up thesis, understanding why its fragmented, are there true benefits to scale and why is this platform best positioned to lead consolidation.
Would appreciate if anyone has views on more “financey / structuring” side of PE. I would’ve thought it was more around getting better financing package / structure, div recap and heavy focus on underwriting EBITDA growth in granular detail.
in the grave it won't matter, go with the firm/team you think you'll vibe the most
The people. The people. The people. Your mental health will thank you
Returns 100% matter. Admittedly (much) less so at the associate level. But at the VP+ level, no bouncing around is not common, carry terms make it incredibly hard to do so. Returns performance dictates your compensation obviously, but also dictates the fund's ability to fundraise...which in turn influences the stability of your seat and your ability to get promoted.
Ohhh I thought you were asking about what we actually care about, as in something greater than ourselves or some higher purpose than spreadsheet models and accumulating luchre. Sigh not sure what else I expected
Sorry man. For some reason I thought this site was a place to talk about careers in finance.
I think a lot of people go with MFs because of the optionality and prestige. Many times, they just don't know what they want to do with their lives and want to maintain maximal optionality. They went into IB to have the optionality of exits and prestige. They then went into MF PE because of prestige + optionality to exit into other funds / HF / MBA. They then go into their MBA to have maximal optionality etc.
Personally, I am not very interested in most of the MFs. Their returns are often mediocre as they have become more focused on maximizing AUM than performance. The focus on financial engineering is often high. You many times (at least here in Europe) do not get a lot of transaction experience but will do 1 huge deal every 2 years or so.
Instead, I am more interested in joining a fund with top-quartile returns, high focus on operational improvements and high transaction activity. As a result, most of the funds I am targeting are UMM funds. Sure, I will not have the KKR / Blackstone brand name on my LinkedIn but I figure that anyone who has even the slightest level of knowledge of the industry will not care. They will know that KKR / Blackstone in Europe has bad / mediocre returns and very limited transaction experience. Meanwhile, they will recognize the value of having been at a place like Hg / Waterland / Astorg etc.
It's impossible to vet during the absurdity of the on-cycle process, but you should care a lot about the learning atmosphere of the place you're joining.
Private equity used to be an apprenticeship. The reason the associate program was the initial entry point was because you were supposed to be a blank slate that happened to have basic analytical, quantitative, and professional skills earned on someone else's dime. So take that as a starting point and add a few years of seasoning in that firm's local environment and you have someone who is just and only then starting to be able to be useful in that firm's overall investment activities.
This is why the farther you progress into banking, the worse your ability to move to private equity is. Firms don't want someone who isn't a blank slate because they baked too long in the equivalent of pre-K. Same logic for why switching asset classes isn't easy: someone with four years of private credit experience is viewed as worse than someone with zero years of buy-side experience because there's an unlearning necessary.
Now that the asset class as a whole has matured so thoroughly, the tight-knit and intimate feel of all the partnerships has faded because every firm is on at minimum its second generation of senior leadership. Ted Forstmann, Warren Hellman, and Lionel Pincus have all been dead for more than a decade. Thomas Lee died this year. Kravis and Roberts stepped back the other year. Bonderman gave up day-to-day leadership a couple years ago. Rubinstein as well. Schwarzman is the exception.
All the effects of scale are visible. Partnerships are no longer five guys making a decision. Committees are huge. All the motions of these firms reflect the focus on the asset-gathering dynamic in the industry.
What I'm trying to highlight is that at most firms (a) there's less of a focus on being the best at delivering performance because that's no longer how the game rewards you the most and (b) teams have scaled in headcount so significantly that the collegial atmosphere of bringing someone along (developing them) because their better individual performance moves the needle for both the firm and you specifically has evaporated.
When you're young it's common to optimize for what will open the most doors in the future. You point out business school and hedge fund roles. Those are worthy paths to consider. But a major determinant of your long-term success in life is the slope of your own ability. How quickly you identify new learnings and develop strong muscle around them will be a big differentiator.
Your 20's are the time to sow the seeds that you'll reap for the remainder of your life. So if you're going to do an associate stint, ideally it's at a place where there's a decent pattern of tutelage, mentorship, investment in each other.
Again, on-cycle makes this hard to know. You should talk to current associates, former associates now at business school or other firms or outside the industry, current senior people (and compare their answers to the juniors'), and even vendors (bankers, lawyers, Big 4, and so on).
Obviously this takes time. If you care about this dimension (I think everyone should), you could realistically sprinkle all the calls throughout your first year and participate in on-cycle as a second-year or just do off-cycle for the places that cross your bar in this regard and also fit your desired mandate in terms of location, size, and industry. Two birds with one stone in terms of intentionality about your associate role.
Good luck.
Not sure I agree with the blank slate comment tbh. Good learning seats across asset classes have gotten so competitive that the experience requirement has gone up. A lot of my friends lateraled into the PE seats they really wanted. Scaled SM equity funds basically require PE experience these days - ditto with distressed and PE / private credit.
I apologize, I can see that I could've been clearer in my first comment, when I share something that lengthy I tend to move faster rather than unpacking every single aspect to its fullest.
I tried to stress the "used to be" when talking about the apprenticeship concept. Things clearly aren't the same any more; this was the overall gist of my comment.
Many things related to this have changed as the industry has matured.
How much of that is a function of your point about the experience threshold raising versus a natural outcome of either on-cycle being so preposterously early or the inevitable discovery process of what someone does or doesn't like?
Because fees via AUM growth > carry?
Totam magni voluptates numquam et sapiente enim. Blanditiis exercitationem sit ea nisi doloribus saepe. Qui recusandae beatae voluptatem delectus. Non quos vitae repudiandae consectetur. Possimus ut tempore iure sint provident. Id non sunt dolorum aliquid sapiente. Cumque non tempore id et sit.
Aut adipisci modi fugit earum harum. Hic ut ipsa quis soluta quis. Eos rem non quas asperiores ut aut repudiandae.
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...