What's the best career path to eventually start a private equity fund?
Is it better to start off in banking and then rise up the ranks or is it better to get a job in PE asap? How useful is an MBA? I've even heard some say getting into HF is also a path into starting your own PE fund.
Any ideas would be appreciated
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I think I posted about this in the past at some point, but basically there isn't a set path but there are more common routes. Unlike banking, where the path to MD is more straightforward, PE essentially comes down to can you invest in companies, find a way to make money with them, and then convince others to give you money to continue to do that?
I'd say the general common route is that funds are formed by former VPs/Principals from another fund. The VPs/Principals have a number of years of PE experience (and usually a couple years of banking and a top MBA beforehand), they realize that the economics are never going to work in their favor. They're a little disenchanted with their current firm, maybe they've butted heads with a partner, got stiffed on carry for the most recent fund, think they see an angle that the current fund can't/won't pursue, etc. Given the time these individuals have spent in PE and perhaps an MBA network, they have some access to LP money, and then essentially you try and put together a thesis for why you have a perspective that is unique to the market and how you think you can generate outsized returns. You try and find someone to seed you with capital for your first deal and hope to build a good track record and start raising more money...easy.
I've seen people go a more entrepreneurial route, starting at a search fund, running a business successfully for a few years post PE and then raising a fund.
You occasionally see a senior operator or banker start a fund, but that tends to be rarer. More likely they get pulled in as part of a group of a few people starting a fund.
I've never heard of going to a HF as a feeder for starting a PE fund. I'm sure someone has done it, but going to a HF is probably a better route to starting a HF than to raise money for a buyout/growth fund.
At the end of the day it's simple in theory but difficult in execution. You need to be a good PE investor and then a good salesperson in order to convince others to give you money.
As far as the best place to start, probably banking for two years and then PE for a couple years. From there the path diverges but you somehow need to build experience that will give you the PE Investing Experience + Capital combo.
Thanks that was very informative!
Out of curiosity, is it not MDs that usually jump ship to go start their own? Thought it was more likely that a MD wasn't happy with their comp (especially at a big place like a MF where there are a lot of partners getting big checks, or if its a public company and money is going to shareholders, etc), and that it would be a lot easier for someone with actual MD experience to raise LP money. Would a principal/VP have the experience to get LPs to cut them the necessary checks?
At a big fund a Principal would likely have enough pull to do their own thing, but unlikely they'd raise too big of a first fund.
And sure, you'll see MDs/Partners from funds leave and start their own shops as well. I should have added that as a "common path" above as well.
The only argument I'd have against that is Partner tends to be seat everyone strives for. At that point you're making good money, have most likely worked hard and put up with a lot of BS to get the seat, and have a lot of money tied up in carry. Most folks don't make it to that level just to jump ship. With that being said, often times the carry isn't split evenly, so junior partners are more likely to jump ship after a few years and probably do have stronger fund raising abilities.
bump
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I feel like starting a fund with a good combination of co-founders is extremely important.
The skill set to run a successful fund (both in private and public markets) isn’t necessarily the same skill set to be a successful investor.
Could you please elaborate? What kind of backgrounds should the co-founders of a fund have? Should they both be high level people in a PE fund or should it be more varied?
How much does the pedigree of your background matter vs experience if you’re trying to start your own place?
If you were an LP, who do you want to tell your board you backed?
- ex buyouts partner at Apollo? - ex MD at Blackstone? - ex partner at Huron Capital Partners
It's the "no-one gets fired for investing in IBM or for hiring Cravath" risk aversion phenomenon.
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