Why is everyone in love with PE?

There's a perception that its better pay relative to hours. Now that can take many forms. At a megafund for example, nobody expects their hours to be better than IB, but pay will be higher. At a smaller fund, pay may not be better than IB but hours almost certainly will be.

Another reason - and this is vague but more valid than the hours reason - is that some people are more suited to an investor's mentality than a client service mentality. I left IB at the VP level to take a mixed PE/HF role with a family office (I never know which WSO badge to use . . lately using HF because the public side is taking more of my time). My hours only got slighly better and my pay is way less in these early years. My reason for doing it, is that it allows me to bet my future on my ability to generate returns rather than my ability to win clients. I have much more confidence in my ability to do the former. That's a very personal decision and its hard at a young age to know who you really are, but if you have a very strong conviction that you're good at X then that's going to trump any other reason for doing something.

@PteroGonzalez" has a great response.

Aside from that, it's simple economics. There's few industries where you can generate billions of dollars in profit with few employees, little overhead, and little/no skin in the game.

Keep in mind that at the biggest megafunds (which now reach tens of billions in committed capital), the management company can earn hundreds of millions of dollars in management fees alone before even thinking about the 20% carry award.

Now, whether all the lemmings charging hard at PE will ever actually be the guy making millions and having a carry award is another story entirely. But the perception keeps the ranks replenished.

My reason was pretty simple: I was done on being my MD/D/VP bitch and to deal with totally unpredictable hours / schedules.

PE is not heaven but at least you can see the tsunami of shit coming over you and organize yourself accordingly.

Another thing that puzzles me is why is everyone in love with hot girls? Why aren't people crazy over the 3's? Man it's so wierd...

Because of this guy: https://www.forbes.com/sites/antoinegara/2019/10/02/meet-wall-streets-b…

The allure of PE: - make insane amounts of money in the long run with carry if you make it to a more senior role and are picking the right businesses to back/have the operational ability to improve them - it's arguably "safer" than hedge funds/other AM because of long lockup periods on AUM while not having the same failure rates at VC since you're investing in mature cash generating businesses - it's a natural progression from IB for many since there's so much process management overlap with one main difference being a shift to an investor mindset - arguably more control over your time since you are the decision maker and you're not a service provider answering to a client on a deadline (more true at senior levels, junior you'll still be worked like a dog in most cases)

So in the long haul make more potentially way more money while having more control over your time with a natural build up of related skills from IB, in a career that's a relatively safer option compared to other alternative asset investing jobs.

It's in many cases genuinely greener pastures than IB (or at least that's how it's advertised) so why wouldn't bankers therefore try to make the move?

"Because I want to fit in."

I have an entrepreneurial background and PE was the best way for me to deploy my funds. Being able to leverage my operating experience to drive returns isn't really something I'd be able to do if I was investing in oubcos.

I don't think there is a solid reason why the majority choose PE. I think only a small percent do it because they genuinely feel like it is their calling in life to be on the buyside. The reality is most are just following the crowd and chasing an idea of something that in most cases does not exist. Headhunters also have a lot to do with it. Everyone likes feeling valued and when your getting abused as an analyst in IB and a recruiter shows you all these "magical" options that exist in PE it is hard to pass up. While I agree the work is probably much more engaging in PE at the junior levels, the pay in the majority of cases is worse and so are the options for promotion (especially now that a lot of banks offer A2A without requiring a third year from analysts). To me it only makes sense if you have a clear path to partner at an existing fund or you are using it as an avenue to get into a role at a portco. There is nothing all that glorious about just being a PE associate.

Because most people are in undergrad, and think they will be a billionaire by 30.

1. The pay is among the highest in finance given the same position/level
2. It is much more intellectually challenging since you really have to look the companies as if you were the one who's investing
3. Networking.
4. Chance to learn so much (even more than IB) in such a little time.
5. Prestige.
6. Because most likely you will get bored in IB after 3-5 years.

Because banking sucks and going to PE allows you to push off making a real decision about what you want to do with your career. Add in 2 years of b school and you're essentially just following the well worn "track" of finance professionals.

I’m a first year analyst so mostly speculating here I suppose. I did some on cycle recruiting as well as a lot of other people in my class and my honest takeaway was I’m not sure I want to do PE.

It seems like it’s a lot of the same work, there’s a good chance you have the same or similar hours, the pay is generally worse than staying on till associate and (perhaps most importantly) at my bank if you’re an analyst who wants to stay for more than 2 years or an associate who’s not dogshit, they seem more than happy to promote you, in fact they try hard to convince you to stay. That seems pretty different from PE where a lot of funds I talked to were basically like “this is a strict 2 year program and we don’t hire our own associates back after MBA”

The associates / senior associates in PE I’ve worked with all seem pretty stressed still and are always online just like the bankers. Our A2As and senior associates seem to have a pretty good relationship with senior bankers and can push back on work (when warranted) and block off time to have a real life (to the degree that’s possible in M&A). And the senior PE people seem even more stressed than my senior bankers.

A lot of my friends in banking recruited for PE and the two reasons seemed to exclusively be 1) everyone else does it so I am and 2) banking has sucked ass so far but if I get a PE job I can have a greener pasture after 2 years (but who knows how green it’ll be)

I decided to wait a year to recruit again and maybe at that point I’ll hate banking and look back on this post and think I was an absolute idiot (I’ve thought it was fine so far) and want something new. Or maybe a really cool fund will reach out to me, but at this point it seems like I’d be doing mostly the same job for likely less money and starting over again with 0 social capital at work for a job that would probably push me out in 2 years and I’d end up in a similar MBA program to what I could get into from banking or doing a corporate development job I could have gotten out of banking.

Most of what I would say has been mentioned above somewhere, but my thoughts are:

A lot of people go into it because it's the logical next step after banking. The hours are supposedly better, the pay can be higher, the work more interesting etc. In some cases this is true, in many cases some aspects might be better and some might be worse. Unless you're at a MF, the pay in banking at the Associate level will be the same if not higher than most PE firms, especially as almost no associates will have an equity-based incentives. Hours are dependent on firm, but if you're at a "good" firm with a recognizbale name, you're probably working pretty hard still. And the work itself can be interesting, in my opinion, more varied than banking, but it's still a grind at the end of the day.

I work in the LMM space and I've done some interesting strategy work with the businesses and I've also had to do super mundane stuff like set up bank accounts and had to think about the right insurance coverage we should have.

I've said this in other posts, but PE and Banking are fundamentally different skillsets in my opinion. Not necessarily at the junior level, but as you move up the ranks, banking is about getting deals done, it's more process, more repetitive, but a good banker is worth his/her salt if they can run a great process, get the right buyers invovled, drive the price up, etc. To me banking is wheeling and dealing, client-facing, pitching, and selling. It's fast paced, but being at the beck and call of clients can make for a tough lifestyle.

PE is also about sales (as most upper-level jobs are), but it's a different sale and has more of an intellectual component (or quasi-intellectual) in that there's more thinking about investing, value creation, selling a fund vision to investors. It moves much more slowly and it can takes years for deals to come together. While there is some repeatable process, each business is a little different, so it might require a little more creativity.

With all that being said, overall I think PE is idealized. There's few firms that are doing anything too revolutionary in terms of value creation and it usually centers around the same few places of cost-cutting, financial engineering, etc which of course then boils down to process-related items. Carry is also tough to come by even if you have it and unless you're at a big fund (which means it's really hard to get carry) or high up in a small fund that is killing it and also has good headcount to returns ratio, carry is a nice bonus but is rarely as life changing as people think. Sure as a Principal at a MF it might be a few million over the life of the fund. Even if it's $10M over the life of a fund, that's $1M annualized, on top of a ~$500k salary or so, is that a ton of money? Sure. Is that so much better than a junior MD at an investment bank? Probably not, some would argue that if you went straight through at a bank, you might even have a better quality of life as an MD.

So at the end of the day, it's still finance, it's still stress, it's still mostly boring work, etc. It's white vs egg shell white. Some like the faster pace of running a process and putting together a great sale. Some like raising capital, hunting for a great value creation opportunity over the course of years, doing a few deals, grinding out value, and selling to LP on giving one more money to rinse and repeat.

PE and other buyside jobs can lead to really engaging, fulfilling and lucrative long-term careers. I think the wrinkle is that there is a bias at many of these firms to hiring kids only a few months out of college - and at basically no time thereafter, should a person not have prior PE experience - which puts a lot of pressure on analysts to take the fleeting opportunity when it arises, none the wiser. (To say nothing either of preoccupations with things like prestige and public opinion...)

Does IB suck? Yes, it is frankly quite horrible. I was an A2A, and no one can pay me any amount of money to do my first year over again. But does it change as time goes on? It did for me. By the time you hit the latter part of your 2nd year as an ANL, you are so fed up with everything, so burned out, and, surprisingly, bored. But if you can stick it out to a 3rd year and/or the ASO rank, you'll find that you can break through this terrible plateau. If you were good, your daily responsibilities change and expand, you've developed strong rapport with colleagues, senior people and clients, and can captain your ship a little more, you face new, interesting challenges at work, and you have to learn and cultivate new skills you didn't bother with before - all while being compensated very well.

Is it still terrible and frustrating and tiring at times? Totally, haha. But you are welcome to leave at any time before VP/Director (when the career track starts to narrow), and you are just as well set-up to pursue any other avenue of your career, especially in finance, as your buyside brethren.

The CHAD investor vs the Incel Virgin advisor

I wanna be a Chad bros

Online forums led me to Private Equity. I graduated from undergrad five years ago with a 2.5 from undergrad, went to law school, and spent way too time on the law school version of WSO which held PE up to a high regard, so I focused my career on private equity from when I started law school and made it to an investment role at an UMM shop in the past year.

Now that I am here, I am grateful for where I am in life, I have a good lifestyle, do extremely well on a monetary basis for my age, I am higher up the shit chain than my biglaw job and have more control over my schedule, and am generally satisfied with my work. . . however I constantly have the "what if" question if I had pursued what I was interested in instead in of following the herd.

I would highly recommend thinking about why you want private equity instead of blindly pursuing a dream that others have set for you. There is still a shit-ton of execution and process in the job at both the junior and senior roles over the heralded "rewarded for innovative investment ideas" thoughts about the job. The profession is very crowded in the UMM/MF space, which hurts returns, and going forward the successful funds in private equity will lean more towards management fees than incentive allocation, unless you have a super special "sauce" (think Vistria/Silverlake/Vista where portcos will choose to partner with you with deficient offers in auctions).

i think many people are in love with the theoretical returns available with sharing in the carried interest. However they fail to realize that getting rich off of carry requires some pretty big pieces to all line up perfectly: 1) you have to be at a fund that has sufficient operating leverage (a relatively low number of people compared to the fund size), 2) a high return on the fund, 3) be invited to participate in the carry program (often carry is concentrated at the top mgmt of the firm), 4) you have to wait out the fund life / get to exits to get carried interest disbursements, 5) liquidity (if you're in growth capital or even LBOs you need to wait for some liquidity event for return of capital). All things considered, it makes simple deal-based bonus comp in ibanking look pretty good. Some people fall for the glamour and stars and go to big PE funds only to realize that they made more money, more reliably, in ibanking. Also there's the whole aspect of variance in PE funds. The success repeat-ability of funds is low, and there's such vast differences fund to fund.

I think a big part of the attraction of PE is the difficulty of getting in. We're so busy jumping through hoops our whole lives, that we believe in the prestige story, and inherently believe that if something is hard to get into, it must be awesome and worth having. Because PE is selective, with few seats, people assume that it's better than IBD. And it may not always be the case. Like getting the sought-after girl that turns out to be a nightmare to live with.

I think you could ask the same question about IB. When I did a semester abroad at one of the universities in NYC, it shocked me how many students claimed they were 'passionate' about banking (and PE, HF for that matter). I'm working in real estate M&A at one of the big4 and while it's fun, I'm not sure how passionate you can really be about many parts of the job like building slides, etc.. But It seemed like that's what everyone in my finance classes wanted, completely neglecting any other career path you could take in finance. I think a big part of it was that in the city and among the students working in these fields has somehow become the definition of making it, maximum prestige, and proving to others how great you are. Pretty much all the students I met who had scored IB internships were kinda cocky about it. While choosing a job should probably be based on subjective interests, I got the feeling that career choices in finance have become more of a standardized path (obviously only in the minds of students) with a few 'good' steps like PE and a bunch of others that you only take if you can't make it to PE, IB, ... or in other words, there's a lot of peer pressure involved and if more people actually looked into the other finance careers out there, I'm pretty sure some of them go would with something else

It depends on which bank you leave and which PE fund you join. In some cases you get a pay boost and better predictability re hours.

That said, almost everyone I know has said it is simply banking 2.0 ... its unclear why everyone knows this but still does it to be honest.

Everyone says banking gives you unlimited exit ops, but PE is far, far better. You are equipped and vetted to do basically anything given where you're at.

Want to swap to consulting?

You're equipped to do it as someone who gets strategy, has been in the real c-suite huddle before, knows how to break down competitive dynamics, and can actually contextualize what's fluff and what can actually drive shareholder value.

Want to swap back to banking?

You have the M&A skillsets and requisite buyside knowledge to be dangerous as you rise up.

Want to found your own business?

Who else at your age has reviewed every aspect of a business (strategy, accounting, tax, legal, environmental, insurance, employees, operations, engineering, etc) in incredible detail, with the benefit of a roster of 3rd party experts, and with intense pressure to get it right?

Want to go to a hedge fund (or mutual fund equivalent)?

As someone who previously did PE, you know what a good business looks like and you know what a cheap price actually is. You're also well prepared to sift through BS management reports and figure out what's really going on.

Want to be a corporate lawyer?

In PE you manage every major type of corporate legal document and topic, from purchase agreements to tax complexities to formation docs to lawsuits to patents to everything else. Highly relevant if you decide to go to law school.

Want to go into politics?

You, unlike say a lawyer or a hedge fund manager, actually know what living, breathing companies (and employees) look like. You will, in your times in PE, be faced with hard decisions that will impact the lives of hundreds, thousands, or maybe tens of thousands of real people. You will (hopefully) be forced to become a grown up.

Want to just say f*** it?

PE pays well. You can fool around for a bit, cash some checks, then head for the hills (or the and regroup a year from now. Entrepreneurship is always an option, especially if you got a greenback safety net.

An underrated aspect is how much power you can have (if you are good). If you are good you can command your own schedule pretty effectively. If you are good you can drive your commitee towards the good deals that you want to do. If you are good you can win the hearts and minds of your portco management teams and develop effective strategies and tactics.

Finally, PE is a straight up fun job. It's like getting 95% of the rewards for being a successful entrepreneur without having to actually pulling off founding a successful new business.

Is PE comoditizing? YES!

Will you get 10 years of 100% IRRs like Kravis from '75 - '85? NO!

Would I bet that in 30 years the CEOs, Societal Leaders, and just general ballers of the world often used to be PE Associates (a la former GE, or bell labs, or the equivalent)? YES!

Seems clear to me

I used to be in IB and I never thought I wanted to do PE after. I actually even got into placement agent / fundraising after doing M&A however while raising money for PE I (and my PE clients) thought I would be more suitable in PE so I jumped over to a client and now work as an investment professional (VERY rare path to PE I guess but it was also the most natural thing ever). Now that I have been doing PE for a few months for a small sector fund... honestly, it's incomparable with any job I have ever had. 1) The fact that you DON'T SERVE any clients and are 100% in control of your time makes a huge difference to your overall happiness 2) the work that you do is so MUCH more interesting 3) you have cool entrepreneurs come an pitch to you, it's so interesting to hear their stories 4) People you work with are generally happier and more relaxed which creates such a nice atmosphere ...I do earn less though which is annoying but I would still never trade it with going back to IB. How

In my opinion: join a megafund from IB and your life will not change much and you will continue to earn well. Join a MM or sector fund with a small team and your life will be transformed BUT most likely you will earn less (in the short-term)