what's IR / capital formations like?

I often get DMs from WSO monkeys, usually early in their career, asking what IR and capital raising for PE funds is like. I thought I'd answer a few common questions.  I have the unique position of having worked in real estate PE (4 years), growth capital (4 years), and then IR (against my will, for 7 years). 

  1. Will deal folks give you much respect?

Generally no. The two functions are totally different, but they are both pretty difficult. Many deal folks think IR is easy. It certainly is less intellectually difficult, but it's quite challenging to source, qualify, and develop LP leads. One ends up scouring databases, cold outreach, comparing the LPs of your competitors, hitting conferences and emailing a lot of people. Not intellectually stimulating at all, and admittedly lower-intellect work than deal work, but it's a slog and extremely time consuming just the same. If your firm is really holding you to account for growing AUM, it them becomes very stressful.  Nothing like the MD grilling you about pipeline week after week, and blaming you for slow AUM growth.

  1. Can one move from IR to the deal side?

It's nearly impossible. IR is quicksand. And the skillset is not transferable. Moreover the perception of IR people is not favorable among deal professionals, so making a move is super difficult. 

  1. Comp

Lots of variance on this aspect. Can't comment. I know seasoned IR people working for $1B funds making $150k/year, and I know folks working for $1B+ funds making $1M per year. Most are likely somewhere in the lower end of the spectrum though.

  1. Fun

It is not fun. Fun left life so long ago I wouldn't know what it looked like if I bumped into it on the road.

Comments (24)

Jun 19, 2022 - 7:48am
Ravena, what's your opinion? Comment below:

I wonder how many years I have left before I find myself with the same degree of cynicism. I don't disagree with your responses, except maybe the last one, but I would take a rosier view on the function, at least today.

I haven't been doing this as long as you, I'm about 8 years into my career with 5 of them spent in IR / cap formation, but I'm generally enjoying myself (read 51% of the time). The focus on AUM growth by mid size firms to the mega funds has resulted in significant resources thrown at IR/fundraising groups and I think I've benefitted from that trend. That said, I also realized early on that this was probably my best shot in finance and I transitioned into the role at a firm which placed a lot of emphasis/value on fundraising. I started on the investment side but was never going to make it in that role.

Most Helpful
Jun 19, 2022 - 10:03am
earthwalker7, what's your opinion? Comment below:

On this I will agree with you - go to a bigger shop. It's far easier and more lucrative to raise for a mega fund than an emerging manager.  When I was at a mega fund, people would email me for meetings. People were sincere about investing with us. All I had to do was present well and manage the funnel.

When I moved to an emerging manager I became a streetwalker. I hustle for meetings at the edges of conferences like a crack whore. "Hey solider boy, me love you long time. I give you handjob for a 1:1 meeting."  Fucking hell. To think I turned down Providence Equity IR because I was sick of capital formations. Fuck me.  And fuck the fund that first said "we'll have you do a bit of IR alongside your deal work. It will give you a new skillset."  Fuck that. Once a fund realizes you will do IR, that's all they want you to do.  [insert dirty joke here]

Guys you know you better watch out
Some funds, some funds are only about
That thing, that thing, that thing
That thing, that thing, that thing

Jun 19, 2022 - 10:43am
Ravena, what's your opinion? Comment below:

Agreed. I would go so far as to say if you can find a novel, in demand strategy, then joining an emerging manager could be worth it. For example, I hear from LPs all day who are seeking differentiated private credit strategies (non-direct lending, equity like returns with downside protection). If I felt good about a team and product like this I wouldn't hesitate to join if the economics were there.

EDIT: when evaluating an opportunity like the above I would also factor in how scaleable the strategy is. It doesn't need to be huge but I would want capacity of at least a billion per fund vintage. I'm not interested in raising $300 million funds.

Jun 22, 2022 - 6:56am
Ravena, what's your opinion? Comment below:

Great work life balance and lots of access. If you're at a meaningful LP you have a lot of leverage with the sponsor community. You're going to sacrifice comp but it can still be a rewarding space especially if you're also doing secondaries / co-invests. I think an issue you'll find is that people in these seats beyond the junior level don't really leave so it can be tough to progress.

  • Associate 1 in IB - Gen
Jun 19, 2022 - 2:22pm

Depends. I've worked for large and small firms and agree that comp/WLB are wildly different depending on the shop. I worked for a fund with a few billion in AUM and senior IR/Cap formation guys were compensated a few million a piece after a successful ~$1.5b raise (w/ some pretty heavy hitting LPs - think CALPERS, CCPIB, etc.). Obviously the firm wasn't rolling out new vintages every year so the comp is variable YoY (senior guys are LP facing and junior/mid-level staff are more a support function). FWIW, at small & mid-size firms, it is very important that at least one of the most senior partners at the firm is in a highly influential IR/BD role (someone who could be a deal guy but choose to walk a different path) otherwise the culture will likely be shitty and you are viewed as second class.

I've worked with world class IR people and some not-so-good people and can definitively say that talented people command a premium and should be compensated in-line with deal professionals (or are ex-deal professionals).

  • Analyst 1 in IB - ECM
Jun 19, 2022 - 4:18pm

You brought up some valid points; however, I am going to disagree with IR/fundraising being completely miserable. They definitely do not receive the same level as respect as people working on the investment teams (which is truly a shame since both require a similar skillset). A truly good IR person will know each fund inside-and-out while holding the ability to understand how modelling/deals work. Of course, it's less intellectually stimulating but its a great career for individuals who prefer doing little to no modelling work and having the opportunity to meet a lot of different people (LPs). I agree that it's nearly impossible to transfer from the IR side to the deal team but I know of a few individuals who successfully have done the transitions, although it takes some time and quite a bit of networking to do so. Likewise, IR people play a huge role at a fund since without any capital, the investment team would not be able to make any deals.

  • Analyst 1 in IB - ECM
Jun 20, 2022 - 4:25pm

Two of the individuals I know made the jump to PE/PC after working 1-2 years on the LP services/IR team. It obviously depends on the firm's culture and if they're opening to internal moves. Both are/were at European large-cap funds and had prior IB experience (which is probably the most important thing to note). Networking is key to internal moves and building up a good rapport with the investment teams (of your interest) that way when a potential spot opens up, you can possibly interview. This is why I recommend to brush up on your technical/modelling skills to make yourself a better candidate if you're working in IR where modelling stuff is limited.

Another alternative that I've seen before is to go do an MBA and transition to the investment side.

Jun 21, 2022 - 8:15pm
earthwalker7, what's your opinion? Comment below:

well lots of permutations. Generally I dislike it, but that's because I specifically got into growth capital PE because I wanted to learn about different industries, technologies  and companies. IR takes away all the fun of learning about new tech and new businesses and replaces it with smile and dial outreach and pitching. Now pitching isn't terrible if it's a unique product that LPs are buying. It's a lot less fun when it's not what the market is demanding. And in no case is outreach as much fun as analyzing tech/companies/industries. I enjoyed the rush of deal work and like this IR much less. But once funds realize you can do IR, they won't let you do deals. The one or two times the GP gave me dual appointment to do both, I failed at both, because these are each full-time always-on jobs. You can't both do deals and fundraising at the same time. The only way it will ever work is if first you do IR, and then when the fund is raised, you toggle over fully to deal work.  

Jun 21, 2022 - 12:03pm
Brio, what's your opinion? Comment below:

Would you like capital raising for a HF instead? Where do you think you could go?

Jun 21, 2022 - 8:21pm
earthwalker7, what's your opinion? Comment below:

I was the head of Asia for cap intro for a BB for a year.  I quit after a year in frustration. This is because our model was broken. Our BB in its infinite wisdom felt we should prime broke the small funds in the market, hoping they'd stick with us when they got large. It was as flawed a theory as McNamara's Domino Theory. First, it takes much MORE work to support a small fund than a large one, and it pays much less, so we as a BB division were always losing money. Each new sub $100M AUM client we took on would bleed us further, and each small fund sucked my time away. I had 70+ clients! And no team to help me. How can I cap intro 70+ clients effectively? Second, the theory was flawed; once the funds did get bigger they moved their business to a better resourced prime broker at GS or MS. 

Jun 21, 2022 - 7:04pm
earthwalker7, what's your opinion? Comment below:

So true.  The boss that was the real screamer had -25% IRR and a scatter-brained unfocused strategy. Even though we were a PE fund he invested in China, US and EU, in venture, growth, buyouts, PIPEs and would even just buy individual stocks on the open market. LPs literally would tell me "I can't invest in this. You guys are all over the place!" And while maybe you can bend the rules if you can generate alpha, you certainly can't absolutely ignore all rules and scatter-brain invest if you're printing -25% IRRs.  Illogical to then to yell at your capital raiser because LPs aren't lining up to have their capital dumped into a hole and lit on fire.

  • Teller in Non-profit
Jun 22, 2022 - 3:42am

"Against my will for 7 years."

Incredibly attractive colleagues?

Funniest
  • Prospect in PE - Growth
Jun 22, 2022 - 3:51pm

Once you make it to higher levels up the ladder of IR at a PE/VC/HF, are there opportunities to earn carry and/or % earning from funds raised (especially at a more reputable fund)? Or is it more flat salary + more arbitrary bonus? Been looking into IR as a field because the work seems my type but worried about compensation.

Jul 15, 2022 - 7:11am
Ravena, what's your opinion? Comment below:

It depends on the shop. If you're successful you will have really strong cash comp regardless. I can think of at least one mega fund that offers carry to IR/Fundraising teams and mid size firms can be convinced to offer it more frequently.

What I tell kids is that raising money can be much harder than deploying it, especially if you're not at a mega fund, and fewer people are lining up to do it. Firms are starting to realize the importance of high quality distribution, evidenced by the crazy amount of hiring happening in the space. All of that is supportive of strong comp moving forward. As a data point, we hire associates at 200-225k all in and it scales well from there.

Jul 19, 2022 - 2:59pm
komeri7310, what's your opinion? Comment below:
earthwalker7

I often get DMs from WSO monkeys, usually early in their career, asking what IR and capital raising for PE funds is like. I thought I'd answer a few common questions.  I have the unique position of having worked in real estate PE (4 years), growth capital (4 years), and then IR (against my will, for 7 years). 

  1. Will deal folks give you much respect?

Generally no. The two functions are totally different, but they are both pretty difficult. Many deal folks think IR is easy. It certainly is less intellectually difficult, but it's quite challenging to source, qualify, and develop LP leads. One ends up scouring databases, cold outreach, comparing the LPs of your competitors, hitting conferences and emailing a lot of people. Not intellectually stimulating at all, and admittedly lower-intellect work than deal work, but it's a slog and extremely time consuming just the same. If your firm is really holding you to account for growing AUM, it them becomes very stressful.  Nothing like the MD grilling you about pipeline week after week, and blaming you for slow AUM growth.

  1. Can one move from IR to the deal side?

It's nearly impossible. IR is quicksand. And the skillset is not transferable. Moreover the perception of IR people is not favorable among deal professionals, so making a move is super difficult. 

  1. Comp

Lots of variance on this aspect. Can't comment. I know seasoned IR people working for $1B funds making $150k/year, and I know folks working for $1B+ funds making $1M per year. Most are likely somewhere in the lower end of the spectrum though.

  1. Fun

It is not fun. Fun left life so long ago I wouldn't know what it looked like if I bumped into it on the road.

What about BD roles at funds? Are they just dressed up versions of what IR does? 

  • Analyst 2 in PE - Other
Jul 20, 2022 - 8:43am

I'd say no (kind of) - most of the sales people are very long tenured and have built extensive relationships and honestly the team isn't big. Each person counts and it would be a pain in the ass to fire someone. It seems in this space you cut someone fast if they aren't working out but to get a sales role you've definitely had to show a good track record and the longer you're there the harder it is to let you go

Aug 5, 2022 - 5:14pm
Steam, what's your opinion? Comment below:

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Array
  • Intern in PE - Growth
Aug 5, 2022 - 6:45pm

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