What replaces Private Equity? What's the next popular exit opportunity?
The LBO gave way to the rise of private equity in the 1980s. Today, the PE space is becoming crowded and returns are shrinking.
- Do you think there will be another thing like the popularization of the LBO to give way to a new type of alternative investor?
- Is there anything you see right now that is on the rise and can see more people jump ship from IB to join in the future?
green energy financing and securitization for alternative energy (e.g., Solar ABS)
I think this is what people want it to be but the returns for that are about to be god awful.
just wait until the US Gov starts to think of climate change as a national security threat and they start shelling out hundreds of billions like they do with the military
Chamath P. mentioned in his podcast that the first trillionaire will be the person who solves climate change & environmental destruction. Not sure if that is green tech per se, but I could certainly see that happening.
Just an intern, but staying in IB is way overlooked on this site, especially if culture is good and mentorship / room to grow is there. Spent a lot of time recruiting throughout UG and found a team that's a really good cool culture that I really fit well with (even when it meant sacrificing "prestige"). I have 0 intention of exiting which means I can just focus on work and when I'm not working I can chill, hang with friends, do whatever I want cause I won't be tweaking about buy-side recruiting. Banking is banking and won't be glamorous or "cool" anywhere you go as an analyst. I get the impression analysts in IB adopt the "grass is greener" on the buy-side or any other exit mentality while grinding through the bullpen, then leave and realize they actually didn't have it that bad and PE isn't a magical place where all their former problems would disappear. Culture / fit of the group is so much more important than it seems which is why I think if you find that group for you in IB, why not ride it out and reap the benefits?
Cool story bro but that's not what this thread is about. OP is asking which industry/sub-sector is gonna produce the billionaires of tomorrow
If anyone had the actual answer to that, they wouldn't be working in banking unless banking is the only/main way to stumble upon it. Those future-billionaires, if the future has billionaires, would just instead be doing that. Regardless, they're certainly not shitposting on WSO. In any case, by the time the hot new thing is well-known and being discussed on WSO, it'll already be so deeply entrenched that you'll either already be in the first-movers' pool or left behind. And, if you're asking people for get-rich-schemes, you're probably going to be in that second group.
Even when it comes to PE, we can count the number of PE billionaires on basically one hand, and they're mostly all products of the initial LBO/PE boom anyway. At this point, the IB -> PE pipeline is just a long line of chasing after the last few seats onto the gravy train.
Pull your head out of your ass and breathe the air outside of the circlejerk. The other poster made a really important point and contribution to the conversation: the focus on 'exiting' is misguided, and there's no sense in perpetuating an 'exit for its own sake' kind of culture.
Ok intern, wait until you become full-time and please give us an update in a year's time lol. You are simply in your honeymoon period.
Usually I don't comment on threads like these, but having been in your shoes recently enough as the excited undergrad heading to a "prestigious" career, I'd like to offer a well intentioned, point of view:
Don't expect your trading of prestige for culture to be the silver bullet that solves the age old churn rate issues these places have.. Not a single one of my friends out of undergrad is happy in IB, despite all of them going in drinking the kool-aid to various extents. This isn't a knock on you so much as a reminder that these types of careers are the equivalent of a blunt axe to your psyche, especially when paired with the extreme shift from an environment like college where you get all the freedoms of an adult without most of the stressors.
Now, I will caveat this with the fact that I am at a "prestigious" firm, and therefore may be subject to more BS because my firm knows it can dangle the name brand as a carrot, but from my conversations with friends at all "levels" of all places (Big Tech, Corporate Strat, Boutique IB & CO, Big 4), a feeling of post undergrad blues is universal feeling. Your first few years out of undergrad will jar you because of the life expectations shift, a job like Banking exacerbates that more than most other roles. Make sure you go in with eyes wide open.
I can guarantee you that your visions of all the things you expect in the next few years will be very, VERY different than what you expect going in.
Who cares. You can make plenty of money doing just about anything you like. Just ensure you like it enough to work 80+ hours a week at it and be somewhat creative.
Yes traditional LBO returns are shrinking but that's what happens when you have the same strategy and approach to investing as others without any creativity. It's funny seeing investors (especially VCs but buyout too) talk about differentiated businesses when their own is heavily commoditized in 99% of cases. Of course returns will suck when the "investment criteria" section of your site looks just like everyone else.
Private Credit...look at how fast owl rock and some others are growing...
Yeah but they are just financing LBOs, it's simply movement of capital from banks pre-GFC to private credit funds. No LBO, no private credit.
Private space explorers/engineers/execs?
Imagine landing a mining satellite on a planet or asteroid rich in a rare material, being financed by the government to create weapons in space, or being contracted to colonize another planet. Obviously some of this is a little further out into the future, but that's what this is about, right?
Investing in young kids and then getting returns from future earnings
You mean the LaVar Ball strat? That's my retirement plan.
Well if I knew the answer I sure as hell wouldn’t announce it on a finance forum full of ambitious competitive hardos.
Another poster talked about private credit, and I think that's a solid bet. A lot of credit (especially personal credit) is antiquated. Even firms like LendingClub and Prosper have credit algos based largely on FICO. They have disintermediated the banks to some degree, but they've really only scratched the surface. The total pool of addressable loans is in the $trillions and they do a few tens of billions. And frankly, they're not that good at it. They miss originating a LOT of good loans because a lot of their tech is derived from FICO scores. There are hundreds of other data points available on most consumers which are simply not part of the credit algos at places like Prosper.
As a result, firms like Theorem LP are the firms of the future. They hire PhD computer science/physics/math people to 'build a better mousetrap' and pick off the higher-yielding, lower default-risk loans based on a substantially more sophisticated algo. Their AI is simply better than the big marketplace lenders and they're faster too. Just to be clear, the marketplace lenders are better and faster than the banks used to be, but their tech is still based on an old way of looking at credit.
There is only so much value that private equity can pull from the market. Everyone looks at the same metrics and evaluates deals very similarly. That's true in VC as well. In many ways, it's probably even more true in VC. There is a SHIT TON of trend following in venture especially among the second tier funds who are simply hoping to savor of the top tier's returns. If all of the people in the industry went to the same schools, were taught be the same professors, and then worked in the same banks/consultancies/companies before becoming investors, how much novel thinking do you think they're really capable of? It's unlikely to be different en masse precisely because the mass of people in the space are carbon copies of one another. Obviously, that leads to some groupthink which is only cured by diversity of thought.
In the case of firms like Theorem, 'diverse' ideas come from people with backgrounds outside of traditional finance/consulting. That's why they're likely to be a winner in the long-run. Credit is an extraordinary asset class precisely because it's so poorly understood (even by people on this site). And in case you haven't noticed, the world is absolutely flooded with debt these days. It seems to me that the best paid investors of the next couple decades are likely to be in private credit, though I think the skills required to participate in that movement are more Caltech PhD than Harvard MBA.
All good info, but the reason so much personal credit is based on FICO is because using other criteria runs the risk of violating the Equal Credit Opportunity Act, which bans using certain demographic data in underwriting decisions. Obviously race and gender are not allowed to be used, but the act also bans age, marital status and acceptance of public housing assistance.
So the risk is one of these algorithms use or appears to use something that’s a stand in for one of the banned criteria.
Its more than just that. Even if you're not looking explicitly at gender, age, race, etc., if it turns out that whatever you are looking at is highly correlated with gender, age, race, etc. you can be found in violation equal credit opportunity act as well.
I've seen companies using some pretty cool/novel data in credit algos. There's one shop that studied data on whether potential borrowers typically pay for gas at the pump or go inside at the gas station. They found that people who go inside to pay are more likely to be cigarette smokers (i.e., going into the the gas station convenience store to buy cigarettes and paying for the gas while in there) and they use being a smoker as a proxy for making bad life decisions and its a factor in their underwriting algorithm.
Pretty crazy/interesting stuff. No idea if it actually works though
Only Fans
Have your heard of SPACs bro?
I recall (quite Bradly, tbh) a colleague saying, the Big 4 guy envies the IBanker. The IBanker envies the PE guy, who in turn envies the entrepreneur. While not answering your question, my point is that there will always be another pond to yearn, if you are not satisfied with what you are doing. A different question is why. Perhaps $, status or content, independence, decision making power... To each...
I envy the trust fund kid, personally