Why The Grass Isn't Greener: The Private Equity Associate Crisis (PEAC)

A post inspired me to explain the dynamic of the private equity associate crisis (PEAC) that occurs to most people. I think this post might be helpful for readers to understand PE and what happens after the 2+2+2 and could maybe even help a few people having their PEAC's or readers considering private equity as a career. I'm a longtime generally anonymous poster and have both had the PEAC and talked others through it.

First a few things I believe and the bull case for PE/IB:

• 2 years in IB is worth it for a lot of people. It definitely is not worth it if you become suicidal, but almost every other case it makes sense. You get credentialled, learn intensity, pressure management, how to manage up, basics of ppt, excel, email, and finance, M&A, value creation, and more. Are there jobs like consulting or some PE roles that are similar? Sure. But I'd argue the training, learning, and credentialling achieved through making it through an analyst program at a bank discussed on this forum basically gives you a salary floor and skill set where you are employable at a lot of places and can be paid a pretty penny. It's also very well recognized with a great deal of optionality. People that argue you are limited to corp dev and PE don't really get that even though you might be paid less, really almost all entry level jobs and those advanced jobs are open to you. This isn't true for most roles.
  • Further, you get paid a lot very early on, which if you budget, allows for a down payment, job loss safety net, grad school payment or more. This is huge and can give you lots of life flexibility.
• PE expands on the pros gained in banking. You gain further insight into companies and investment decisions, get deeper finance understanding, more professional presence, more credibility, higher salary floor, additional contributions to your nest egg. You are packing your resume to be viewed as legit by most anyone you talk to.
• Prestigious PE firms give a great path to a top MBA program. Some firms are overwhelmingly represented among top MBA class cohorts and even have special relationships with admissions at those schools. The forum gets very fixated on an HBS or bust mindset, but for any normal person any m7 degree is reaching the pinnacle of the business world and IB + PE makes getting into an m7 program almost certain.

What is the PEAC and Why it Happens:

The private equity associate path is different than the banking path for a few reasons that younger readers don't commonly game through and have a hard time understanding. It then hits all at once. Early recruiting doesn't help this and often PE associates end up having a crisis where they get deeply unhappy midway through their role. This is normal and I would argue a good thing in the long run, but really unfortunate in the short run and if you didn't plan for it.

First, the differences between an IB analyst and PE associate:

• PE Associates have worked a grueling job for 2 years. It is hard to explain the toll this takes until you have done it, but generally IB does the following:
  • It makes you in worse physical shape
  • It gives you less free time which deteriorates your hobbies, dating life, and social life
  • It gives you less time for introspection
    • I think an accurate way to describe the analyst role is while being a banking analyst, you generally don't have time for much else. Some groups are better than others and some times are better than others, but it's a demanding time intensive job that comes at a cost. At the start of a banking stint, you haven't paid the cost. By the end of one, you will have.
• PE associates are signing up for a role with a different timeline. I would argue generally PE associates sign on for 2 reasons 1) To leave after 2 years for business school or a hedge fund or 2) To be a long term private equity investor 
  • In the first case, there tends to be idealization of specific firms or schools and there is 4-5 years of sacrifice pent up to achieve results than many times are highly impacted by random chance. There is also a failure to acknowledge the chance game being played. This is setting yourself up for failure. Many people take the GMAT and one or 2 wrong questions take them out of their target school range. Or their respective profile due to race, gender, firm, or some other variable, doesn't resonate with an ad com member or interviewer and they are left with their second choice. As a result, they feel they failed and 4 years of sacrifice wasn't worth it. They then compare others who sacrificed less and ended up at the same school or firm and get deeply unhappy. Or, my favorite, people get into wharton and decide to not go because they scoff at any non-HBS or GSB degree. To me this is like defining your life happiness and success by a coin flip.
  • In the second case, the road ends. There is no longer a goal or end timeline. Instead, associates are tasked with a endless road and the realization that they are going to continue to work long hours and sacrifice a great deal, as they have for the last 2 years, for eternity. This begins to terrify many people.
    • I will add to this, there tends to be an expectation that PE will bring work life balance and be different than banking. There then is a jarring realization PE is banking 2.0. I remarked to a friend once, this is like the saying, "if it looks like a duck, swims like a duck, and quacks like a duck, it is probably a duck". If a firm is almost all ex-bankers, working on the same transactions, hiring with the same advanced timelines, paying the same, and in the same industry--it probably shouldn't surprise you that the role is very similar from a treatment perspective. 
• PE Associates Are Older
  • "I'm built different" you say as you enter IB. "I have sacrificed my whole life and don't mind sacrifice." This might be true, but as you age you realize "sacrifice" eventually becomes trade-offs. This is jarring and eventually a brutal realization occurs as those trade-offs begin to hit against your other competitive goals or your values. You can't actually have it all on the path you are on. A few examples:
    • At 22 not having a partner doesn't matter, you have time to have it all. However, when you start going to weddings or hear about engagements at 26, 27, 28, and you haven't even begun a long term relationship, things get scary. Assuming you want to date for 2 years before getting engaged, are engaged for 1.5 years, and wait a year to start trying for kids, that takes about 5+ years from start of a relationship to your first kid. It is advised to wait 1.5 years between pregnancies. "Oh shit", you realize as a single 27 year old, you only have 3 years to find a significant other or you probably need to limit the amount of children you have. Your dream of raising a family of 4, might not be possible with the track you are on. Also, reality sets in that you have been out of college for longer than the 3 years you have left before finding a sig other and you start to panic. It feels like just yesterday you were in college. Shits getting real.
    • IB is stressful, so you don't see your non-NYC college friends during your stint, or you maybe see them once. Then the PE years hit and you happen to see a non-NYC friend at a wedding. This guy was liked by everyone. The type that was a womanizer in college, but somehow stayed close friends with every girl afterwards. He tells you he's getting engaged soon. "What?! To who?" He explains the story and you slowly realize the guy you lived with in college has had an entire relationship and is now getting engaged and you have never even met the girl he's talking about. He discusses the different people who were there at the engagement and you realize you were left out and truthfully not as close as you once were. The guy continues, "Yeah, so who would have thought this girl would have my heart and I'd turn into a big softie. But anyway, what have you been up to man? Still in New York?"  You try to fight through the question throwing in a self deprecating joke about selling out and "the money being good". This is a common experience with PE professionals I know. I even had a bach party where all the PE guys I know were joking about it.
• PE Work is More Stressful Than IB
  • ​​​​​​​Younger posters tend to underestimate the stress involved with deploying capital. They imagine the PE role more like being Mark Cuban in shark tank where cash is thrown out at good ideas and operational advice given like a big boss man, rather than the reality that PE associate work is much more like a hard math test where if you get something wrong you are thrown out of the class. Also, sometimes the test is very unreasonable and there is no possible way to pass.
    • The work in PE is less process oriented mundane work and more analytical than IB. This seems enjoyable, but in PE you need to do analyses and defend them as people higher up grill you on the details. It is much harder to go through the motions as you can in banking and you always need to be on as people pick apart your analyses. This can be fun in the right environment, but is very stressful in the wrong environment. Unfortunately, PE culture isn't generally one where people like to explore hypotheticals and debate. Rather, it is one that is adversarial, critical, and sharp elbowed. Further, if the people higher up don't agree with you, you are wrong in the eyes of the firm. This can become dicey because the role is often playing a game of telling people they are wrong or advocating for yourself without causing an insecure personality to turn on you. This becomes especially complex when there are several levels as is the case in many large PE firms where a partner wants to see something, a middle manager has something they think articulates that point, and you need to run the analysis, but don't agree with the middle managers approach. Sound familiar? It's a lot like banking, but you are given more ownership of your work and rather than getting grilled on slides it tends to be more analysis based and at times more personal. Going a step further, many times a great deal of analysis is done, the investment case isn't there and you need to continue running further analyses even though it doesn't make sense or you run a ton of analyses only to lose the deal because someone else outbids you. Then seniors get mad for "wasting time"
    • Ops work is very not glamorous. I think IB analysts picture ops work like being employee 5 of a startup when the scenario is more like the following:
      • A portco is struggling and PE partners want to fix some critical issue. It could be legal, HR, or margin related.
      • The associate is tasked with assisting to resolve the issue and be "the adult in the room"
      • The associate is resented by the staff of the portfolio company or the staff of the portfolio company are less motivated, so it is hard to get them to assist with resolving the issue.
      • The associate learns the issue is hard to fix and is either a very labor intensive problem or not as easy to fix as it seems. The issue also could be structural and near impossible to resolve. In my experience, there likely is a reason there is an issue and it never is an easy fix.
      • Partners (especially whoever made the investment) become very angry at the poor performance of the investment. They also get pressure from others for being dumb for making the investment. They reiterate and push against the PE associate to resolve the issue. The PE associate feels the heat.
      • The result is the PE associate works extra long hours trying to fix an issue while resented by portco staff or surrounded by less motivated people. Then, the time it takes to fix the issue is never fast enough, so the partners who made the investment become increasingly angry at the associate for not fixing the issue timely. Lastly, the company itself isn't a winner, so no one cares if you make it better and you don't feel proud of your work it's just various levels of making shit smell better. In your heart, you know it's still shit. The reality is the investment probably shouldn't have been made. You are pushing on a rope or taking buckets of water out of a sinking ship.

How To Fix The PEAC

I wish I had a simple answer, but in my experience, the PEAC is telling you it's time to make a change. It could be the firm sucks, it could be the career isn't for you, it could be you need more free time. What I do know is once you hit the PEAC it's time to start forming an exit plan. I don't know anyone who hit a PEAC and "it got better"--it usually just gets worse. I find the cause of the PEAC is usually a lack of goals or direction. Feelings of hopelessness, "so what", or just general lack of excitement about life and your job aren't a way to live. I recommend the following:

• Make a list of why you are in private equity. Ask yourself if you could get these things elsewhere and if these goals are tangible or never ending. I find generally PEAC's occur because the goals aren't concrete. For example, common reasons are:
  • Money--It pays well and better than other people and I don't want to take a paycut since I'm paid so well
  • Interesting Work--"My work is interesting"
  • Prestige--I want people to respect my job and to feel like I am at one of the top firms
• Make the goals concrete. For example,
  • Money--I want to save $1 million dollars by 30. Or, I want to buy a house in the Hamptons, which requires x in my account.
  • Interesting work--I want to feel intellectually stimulated x hours a day, or I want to be around x Smart people and have 3 people I look up to and want to be like in my organization.
  • Prestige--I find this one is hard to justify concretely. Trying to write down the rational reason for prestige often boils down to, "I am insecure and afraid I am a fraud" This isn't a reason to stay in a job and certainly won't give you a happy life. If you are living your entire life insecure and believing you are a fraud you will be unhappy.
• You need free time. The solution to the PEAC is often found through soul searching and how you spend time if no one tells you what to do--that is where you find your passion. Sadly soul searching is very inefficient, stressful, and requires idle time to try things and stew and process what the point of everything is and why you are here.
  • For many, Bschool provides this and it is why people articulate B School as a life changing experience. I would argue the free time is more valuable than the brand when it comes down to it. Finally, kids who grew up with activities programmed from middle school all the way to their late 20's are able to let their hair down and hear about alternate perspectives without a demanding schedule. For many, this results in meeting a spouse, friends, or memories that they don't forget. Many students at top B schools even drink for the first time--not kidding this is actually a common thing. 
  • However, don't think Bschool is the only way to get this. Taking any role that allows for free time can give you the ability to process and soul search. I think it is counter intuitive, but in my experience PEAC's happen to people who haven't had enough free time. I challenge someone going through a PEAC to envision working a 40 hour week. 9 to 5, Monday to Friday. What would you accomplish from 5pm to 1am every day in a year including weekends? That's 49 hours a week or basically a whole additional job that you can spend toward exploring your passions. Might you find a spouse? Get in marathon shape? Travel the world? Join a rec league? Create a company? I think people going through PEAC's underestimate that as hardworking people with a credentialed background, their value isn't in their job, it is their brain, experience, and ability to work hard. Don't underestimate what you might accomplish or learn if you could choose where to direct your time instead of being told what to do with every waking hour. You have the skillset and credentials to fall back on a 200k role, you will be fine.

In Summary:

• PE Burnout occurs because people are already burned out, they are older, goals are less concrete, and the work more stressful
• PE work can really really suck when the firm is political or when portcos are struggling
• Escaping feelings of unhappiness can come from writing down why you are in private equity, making the reasons concrete/absolute rather than relative, and then getting free time in your life
• People underestimate how much they can accomplish and learn when they are able to direct their own time rather than have every waking moment occupied by work or recovering from work
  • Having free time is stressful, but exploration is how you learn how to be happy. Staying in PE, if you don't like it, is like only eating rice because you are afraid other foods will taste bad, meanwhile others around you have tried fruits, vegetables, meat, and desserts and found their favorite foods. I promise, the rice will probably be there when you come back. It might be a different brand, but I don't know anyone who left a PE associate spot that wasn't able to come back in some capacity.
• You should probably make a plan to leave private equity if you don't like it, it's not going to get better, it's going to get worse.