Why do people choose megafunds over MM?
Wondering about this. Is it just the prestige/pay? Seems like your experience would be quite limited at megafunds (type of work similar to banking, just modelling focused). Why don't more people pursue MM -- especially if it is less competitive?
Moderator note: This has turned into one of the most candid conversations about what working in PE is actually like that we've had on the site in a long time.
Megafund vs Middle Market
There is a lot of great information in this thread about the experience of working in middle market PE fund and how compares both to banking and working at a larger fund. Below are just a few highlighted portions of the thread.
The difference between middle market and private equity pay.
from certified user @HerSerendipity"
I think MFs give first year associates something between 250-300k (last time I checked). This may have changed. I"m not sure what the progression looks like though from years 1 to 2. No carry for pre-mba associates and most, if not all, are 2 years and out programs. Some will give return offers.
I think pay is all over the board for MM PE mostly because there are a TON of MM firms out there. Anywhere between 175-250k is a good range. On carry and the 2-years and out program, some MM firms will participate and some won't; very firm dependent so it's hard to make a generalization.
Comments from the king on the work life at middle market firms.
from certified user @TheKing"
In all seriousness, the work-life balance is better, but when you are working on a deal, it can get nuts. You will be pulling a ton of hours when things heat up and it can really get nuts as you get towards the close. Also, the stresses are, in many ways, far greater than they are as an Analyst in banking. There isn't anyone to hold your hands or check all of your work. People rely on you to get things right the first time, and to get them right consistently.
Looking back, the people who have made out best in finance are, generally, the ones who stayed at a bank instead of going to PE and got promoted. Not those in traditional M&A sweatshop groups, but in different roles within banks. Not every front office job is going to put you through the grinder for 10 straight years. I think it's most worthwhile to get into a group that doesn't break your back and has opportunities for promotion.
Of course, if you don't like banking at all, that won't work. Though, if you don't like banking work at all, you probably won't really like PE either.
Perspectives on adding value at a middle market as an associate.
from certified user @apprentice7697"
I work for a lower middle market fund, targeting companies with 50-150m revenue. More than a few of our port co's are family-run businesses with unprofessional mgmnt teams (I don't mean that disrespectfully) who make decisions on gut, never data. Most of our energy companies have CEOs with no more than a high-school education. I'm often assigned to think-through some quality metrics, develop some dashboards, bring data to bear on their decision-making. Forget whether I personally add value. The role of the associate in this case can add tangible value to a mgmnt team even if it HAS been in the industry that long. They bring experience. We peddle a really good tool kit.
Put it this way, the CEO of an oil and gas waste management company used to drive the service trucks himself. He doesn't know the first thing about managing his balance sheet. He's never (really) had to care before. Even if it is a $70m company. I'm no genius, but that's something I can bring to the table. I think it adds value.
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Risk aversion, prestige, pay, in that order.
Also, if you find a MM PE firm that pays you $600K base, I doubt you'll make more at a megafund in your first two years. Correct me if I am wrong though.
"working closely with portfolio companies and given greater responsibility to evaluate investments." What do you think this means? What do you honestly think you will be doing in PE?
Not trying to be a dick, just so sick of reading about people who want to do MM PE for "operational improvements" and "doing more than modeling and memos." These vague catchphrases that analysts jerk off too (I did once, as well) need to be thrown in the garbage. PE is a deal business, you work on transactions. That means modeling, research, presentations and memos. It means reading a bunch of shit for due diligence and a lot of the same kind of shit you did as an analyst in banking. Yes, your firm owns companies, and you monitor them, but you are not making decisions about how to improve them, if anything, you're analyzing add-ons that come along.
Contrary to what many seem to believe, when you join PE you are not going to become some important hot shot, taking an elevator to the top of a really tall building, sitting behind a desk, making decisions all day. No, you're going to be doing a shit-ton of modeling, memo writing, and due diligence crap that will often bore you to death. Furthermore, there is a shit ton of internal crap to do, just as at a bank. No, you don't get pitches staffed on Friday at 4pm, but it doensn't mean that the work is fundamentally different. At all.
to answer OP, I think prestige is the biggest motivator.
a lot of us in finance are type A. we want to be the best and work for the best and we want to do the big deals that make the front page of the journal (just like you told your interviewer for your summer analyst job...hah). we want to go to harvard and then we want to work for goldman and then we want to work for KKR. we hear people talk about these places being the best and that's what we go for. that's why there are 10 new "what's the best bank/group?" posts on this forum every day.
i had the choice between MM and MF. the guys at the MM were cool as shit and i'm sure it would have been a blast (well...a relative blast) to work with those guys. the pay was the same at the MM. in the end, and against advice from my parents about doing what would make me happier, I went with the bigger fund. I wasn't sure if I wanted to do PE forever and I figured it would look better on my resume if/when I looked to exit. All the senior guys had gone to HBS (as is the case at every MF) so I figured that would be good if I wanted to do Bschool. correct choice or not, i basically decided based on the fact that the MF was bigger and would look better on my resume.
TheKing and bankbank are 100% correct. You're still the lowest on the totem poll, and you'll be doing more than your fair share of mind-numbing, menial work most of the time. I'd say 75% of the time I'm doing similar tasks than what I did in banking. Not the exact same thing, but similar in terms of modeling, number crunching, "analysis", etc. The social aspect of work is far different as well, and don't underestimate that. The comradarie of banking is non-existant in PE. Most of my friends in PE believe all these things are true at their firms as well, so I don't feel I'm that much of an outlier.
That being said, the hours are better than in banking, which is fantastic. I also travel to meetings much more than in banking. I talk to the CEO and CFO of portfolio companies often, though the novelty of that wears off pretty quickly.
Remember in college when you all you wanted to do is banking, because even though you heard from your older friends in banking how much it sucked, you thought it actually sounded cool and exciting? Then you got there and your friends were right, it sucked. Then, when you're in banking, all you wanted to do is jump to PE because it sounded so cool to be on the buyside, even though older friends in PE said it was just like Banking 2.0? Same thing.
TexasIB: Remember in college when you all you wanted to do is banking, because even though you heard from your older friends in banking how much it sucked, you thought it actually sounded cool and exciting? Then you got there and your friends were right, it sucked. Then, when you're in banking, all you wanted to do is jump to PE because it sounded so cool to be on the buyside, even though older friends in PE said it was just like Banking 2.0? Same thing.
Wow. That's a reality-check moment. What the hell are we all doing?
I highly doubt that someone a few years out of college can add tangible operational value to a portfolio company who's management has probably been involved in the industry for decades. Just think about it.
I don't agree with that. It depends on the fund's focus. I work for a lower middle market fund, targeting companies with 50-150m revenue. More than a few of our port co's are family-run businesses with unprofessional mgmnt teams (I don't mean that disrespectfully) who make decisions on gut, never data. Most of our energy companies have CEOs with no more than a high-school education. I'm often assigned to think-through some quality metrics, develop some dashboards, bring data to bear on their decision-making. Forget whether I personally add value. The role of the associate in this case can add tangible value to a mgmnt team even if it HAS been in the industry that long. They bring experience. We peddle a really good tool kit.
Put it this way, the CEO of an oil and gas waste management company used to drive the service trucks himself. He doesn't know the first thing about managing his balance sheet. He's never (really) had to care before. Even if it is a $70m company. I'm no genius, but that's something I can bring to the table. I think it adds value.
I couldn't disagree more. At my fund, ($4B MM), I am still an investment banking bitch. My client is the MD or principal on the deal. And before he brings the powerpoint deck (to invest or not invest) to investment committee meetings, he will absolutely have you up until 4 in the morning fiddling with fonts, colors, formats, sizing, etc. And yes, the hours will be equally unpredictable. Like the partner screaming, "I don't CARE if it's your goddam honeymoon! We're getting a look at a company that's NOT going through an auction process! But the M&A broker wants our indication of interest by tomorrow or he'll take the deal to another firm! Become an expert in the market for machinery that makes dental crowns, NOW!"
Actually, though: I find I don't have the weekend facetime problem as much, though. So at least that's good.
I am at a lower middle market fund (think $500M and below) and we are all about the "improving operations" type of thing. But, again, let me be clear, this rarely affects the work that you do as an associate. Have I been on calls with partners and our companies talking about operations? Yes. Do I monitor operations and go to board meetings? Yes. Do I really do analysis that affects decision making at the companies in any real way? Absolutely not. In all seriousness, the majority of the shit you do at a fund that is all about operational improvements is looking at add-ons.
When we want our companies to implement new go-to-market strategies or some such shit, we hire consultants to work with them and develop plans. Yes, we review these plans and work to understand them with the companies, but again, it's not really my role nor should it be as I'm a 25 year old who has spent his professional life working on excel models, PPT presentations, and long-winded Word documents.
Again, not to beat a dead horse, but this is a deal business. Do not get pulled in by lofty sounding crap and realize that it is still a process-oriented job in which you are building models, updating models, writing memos, and doing due diligence. It's not glamorous and will not turn you into a master of the universe.
I came by this thread wanting to add my two cents, but then I realized that every bit of knowledge I wanted to add has already been dropped by TheKing, bankbank, Kenny Powers, and apprentice7697. I've scattered about 10 SBs throughout the thread agreeing with you guys.
TheKing summed it up best: Private Equity is way more awesome on paper than it is in practice.
I think a lot of people want to go into PE because they want to have an impact on a business right now and fast track paying their dues as much as possible (I absolutely include myself in this statement). I didn't want to climb the ladder at IBM for 30 years before anyone listened to what I have to say - private equity seemed like it would put me there in 4 years, so I was all about it. And here I am, still making excel models.
Of course it turns out that us type A folks don't really want to do private equity - what we all really want to do is be entrepreneurs. Unfortunately most of us don't figure it out until we've arrived in PE and seen it for ourselves. Just look at the number of PE associates that eventually bail and start their own businesses - those are the guys that climbed the ladder as quickly as possible, then realized that if you really want to call the shots as quickly as possible, you've got to be CEO. Not to mention that PE gives you a lot of great insight that makes starting a company a hell of a lot easier. You also figure out really quick in PE (and even banking) that while you're doing pretty well, the guy that's really getting paid is the entrepreneur that owns 40% of the $400MM deal you're working on.
Despite the excellent content in this thread, I know it's going to do absolutely zero to expunge the delusions any of the college seniors or bankers out there aspiring to private equity. To borrow a quote from Morpheus - "Unfortunately, no one can be told what the Matrix is. You have to see it for yourself."
I left my job at a MM PE fund to start my own small HF. My reasons were manifold but it basically resulted from realizing a few key things:
I don't care what PE fund you work at, unless you are a Partner (which takes about 20 years, btw), you are not calling the shots at all, your superiors are. Your value add and compensation will always be limited by the level of control you have as far guiding the business forward. Everyone below this level just follows through on getting deals done. If you spend your entire day building an excel model, just how much value did you REALLY contribute? That's why the entrepreneurs of companies make so much more, they build companies, not excel models. One is worth more than the other...
The hours are slightly better than banking, but the work is just as boring. Also, the work is often harder. Try doing a waterfall on a company that is on its Series F round and each round has different terms, liquidation preferences, dilution adjustments, etc. And it has to be perfect, btw. I worked tons of hours on stuff like that, but it's not really value add, at the end of the day it won't affect your IRR. Writing memos and portfolio company performance write-ups, same thing; worthless in the big scheme of things.
If you own your own business, there is no cap to your compensation. If you are in PE, there is a cap to how much you can make, even if it's a very good living, there is a cap (huge turnoff for me). I'm not afraid of risk and most of you shouldn't be either; if you think you really are top notch, you shouldn't be killing yourself to go work in PE, you should be taking advantage of the fact that you're young and have virtually zero opportunity cost to breaking out on your own and doing something that could potentially be much more valuable. Worst case scenario, it doesn't work out and at least you have something unique on your resume that makes you an attractive candidate to prospective employers.
There is a large amount of pessimism towards PE here, and it's very understandable as all have made great points. However, I would like to suggest that perhaps the feelings being expressed towards PE by those in the industry are not a reflection on the PE industry, itself, but, instead, a reflection of the fact that....work sucks.
Let's face it, work absolutely sucks. I don't care what job you have, sitting at a desk and doing the same thing everyday in somebody else's company is boring. Excel is boring. Powerpoint is boring. Paperwork is boring. And the things you do at every other job in the world are boring as well (save for some extreme cases such as what a basketball player does.) So to all of you who suggest that PE is mundane (which it is as is banking), I ask, what is the alternative?
Sure there are exciting careers in the CIA perhaps or something of that nature, but, realistically, what is an alternative that can provide PE's pay / lifestyle ratio? If one were willing to sacrifice some of that pay, what is the alternative for an exciting career that still pays well and provides a better quality of life? It doesn't exist. There's entrepreneurship, of course, but not everybody can be an entrepreneur (be it due to capital constraints, relationships, ability to sell a product or general lack of good ideas.) So, in the absence of entrepreneurship, what is the alternative to PE? There is none.
That's why you see what you see from people trying to get into the industry. It's not about having the most exciting life. I think people expect to be bored, expect to dread going into work. That's the sacrifice you make for any job, and PE just happens to be among the better paying of those jobs (for the most part.) Yeah, I see what people are saying here, it doesn't always pay the best, but, in working for somebody else, there's not much else out there that pays better.
Yes, this is true. I mean all of us work(ed) in PE for a reason. Still, doesn't mean you can't set your sights higher.
Personally, it was a hard lesson for me to learn, but I don't think money buys happiness at all. I didn't start my own fund for the money. If I make $100K a year for the rest of my life (in real terms) while managing my own fund, I'll die a much happier man than if I make millions a year slaving my way up through PE. I actually really enjoy waking up everyday and working in Excel and following the market and choosing how to allocate capital. And to be honest, I think that because I love what I'm doing I think I will actually (hopefully) end up being much more successful than if I had stayed in PE. It's really funny, because the work I'm doing isn't very dissimilar from PE, but being able to work your own hours and knowing that what you're working on is for your sweat equity and not someone else's, makes a world of difference. I guess the key words in your post was "somebody else's company". Even then, there are jobs that provide you a lot of independence/empowerment and are fun that still pay well; sales comes to mind. I know this chick who does medical supplies sales and she makes like 200K a year (and she's no genius). Sure, she travels a lot, but all she does is talk to clients, pitch the products, and book sales. She's not slaving away at an office and the work is not hard. Same thing with being a realtor (another sales job). You can go out and be a realtor and just drive people around town showing them houses. That's fun as hell and while it doesn't pay PE level salary, some realtors make a lot of money, like mid six figures (or even more - I knew a realtor in Nashville who was making about a mil a year). While I know that there are some people who genuinely love PE, I think most are in it for the money.
I just think you need to get off the mindset that work has to suck. Most of us went to some of the best universities in the world and have some of the brightest minds and possess a career/work skillset most people can only dream of. If there's one group of people for which work should suck the least, it's us. Think about it...
Alex, I dig what you're trying to say here, but a few points just to help elaborate on the discussion a bit (I'll take it piece by piece because these posts are getting long):
First of all, I think we can all agree on this without issue. I mean, sure, I'd like to set my sights higher than anybody. I'd like to achieve unbelievable things that would make you gasp in awe, but, like 99.999% of people who have ever lived, I have yet to figure it out yet. Do you know how many times I've wanted to start my own fund or start my own this or start my own that? I'm just not at a point where I can seem to make it work. So, this kind of path is really the best I can do for myself in the meantime.
I have to, unfortunately, disagree a bit on this one. I mean, now we've reached a point where the conversation changes to what really matters in life. Honestly, I can't comment on the idea that money doesn't buy happiness, so I'll take your word for it. However, what I will say is this, I don't know where you are in life, but I would assume you've made enough money to be able to make this kind of a judgement, and it was after making that money that brought you to such a conclusion. While money has not brought you the kind of happiness once dreamed of, you are forgetting that before you reached a point where you had money, you had a burning desire to get that money. If by today, you had still not reached that point, you would still be striving for that money everyday, and it would pain you that you didn't have it. What I'm trying to say is, that the money did serve a purpose. While it did not buy happiness, it ended the burn that came with not having it. It filled that void, if you will. It's like a hot girl you want (we've all been there). Once you get it, it's not that great, it's like anything else, but before you get it, it sucks not to have it. Sure this may seem like a vicious cycle, but I'm not here to dabble in the existential, that's far beyond me. I just know that reaching that point of economic success certainly does have it's value, and it's much less painful to be in a position in life where you can say "money isn't all it's cracked up to be" than to not know what it's like at all.
So, yeah maybe that sales job you mentioned is great, and it pays alright (200k is nothing to scoff at, especially for somebody born in Appalachia like myself), but it's still not big time money. And we really wouldn't be on this website if that was good enough, we would have pursued very different careers, many of which can get us to that number. Among the bigger money careers, there still is no real alternative to PE. I don't think any of the other paths seem to be that great. Since you suggested sales perhaps institutional sales offers something near what you would consider to be ideal for that higher level of income? I wouldn't know. I just know that until one has reached that upper level, they really can't say that big money isn't enough for happiness, because the psychological problem is dealing with the absence of the money (in the company of so many that have achieved it and have access to better things.)
I mean if money were really that small of a consideration, then why settle for 100k doing what you do now? I'd rather be unemployed, collect welfare and simply pursue my own hobbies all day long (which are far from work related, and far from revenue generating.) Believe me, I'd be happy as a lark if money did not have any bearing on happiness. I get it, you're striving for that happy medium of some financial comfort and some freedom, but you really can't desire that until you've really fulfilled the big money desire.
I don't know Alex, this question is bigger than me. Maybe the opposite is true, maybe society is below us? Maybe the so-called careers of average people just aren't enough for our over active minds, and, hence, we're not suited to enjoy work? Or maybe society is above us, maybe we think too highly of ourselves? Maybe we deserve nothing more than mundane tasks all day...I don't know. I don't think I buy the argument that because we've achieved decent things compared to most others our age that we should somehow have a greater appreciation for work. Sure, it "should" suck the least for us, I wish that it would, but, I don't think that the system was designed by the smartest among us. Believe me, I'd love to find a job that pays very well and doesn't just plain suck. You think I want it to suck? I have tried so hard to enjoy everything that I do, but for some reason, any job seems to suck when you look outside on an icy day and wish you were on the beach in Hawaii. I think you get what I'm trying to say, that no "job" can compare to what is actually enjoyable in real life, unless you were willing to sacrifice money in a big way and passionately chase some ideal (spend your life as a lifeguard in Waikiki.)
Alex, I think we're in agreement here. I like your idealism, and I hope you make it big and you remember this conversation and I hope I make it big, etc...I have always believed one has the best chance of really making it work if you have a passion for what you do, that's just common sense. I would just caution you a bit. The cliche' does hold true, for every one example of somebody chasing their dreams and making it big, there are so many examples of...well you know... As per your Peyton Manning example, sure he'd play for a cool million a year, but a mil is pretty damn good, if the choice was more along the lines of play for $50k per year or make $150k as an engineer somewhere, the question becomes much trickier, and I think that's the way you have to look at this industry.
However, I'm certainly not as risk averse as you may think, in fact I'm quite the opposite. From my limited knowledge of your situation, if I were in your shoes I would have done the same as you. Especially at our age, I am big proponent of trying to do something on your own while you still have the chance. However, for those that don't have the chance or for those with passions that are a pretty long shot to make a lot of money (which is most people), you pretty much have to work for somebody else if you want to make money, and money tends to win the battle of priorities because it makes obtaining those other passions so much easier. Everybody in this industry has the same idea, get a big time day job down the road and make enough to get chase one's own passions. And that's just what the finance industry is...a day job. It feels like work and it's tedious just like most other people's day jobs. It just happens to be among the most well paying of those industries, and among the most exhausting. Within finance, PE is at or near the top, I don't think there's much of a question about that. It is what it is - a means to make money, let's not make it anything bigger than that. I know a lot of people wish their lives were more flexible, but in the absence of such things, I would just caution that there aren't many alternatives to PE for what it can provide in terms of compensation / hours. Sure there are better things to do in life, and some people have made it work doing awesome things, but there aren't many better "day jobs" - if you will.