Best bang for your buck post-MBA roles (culture to comp ratio)

Obviously I would like to be $10mm+ net worth with low risk otherwise I would do a fun job like venture or be a dive instructor. However I also want to do as little weekend work as possible and be free to go surfing and golf on the weekends, spend time doing real activities with my family, etc. So these are what I want to optimize for.


That said, there is a utility optimizing choice post-MBA. On one hand, I could suck it up at APO for a number of years and make an insane amount of comp, but then I completely lose the lifestyle goals, so that's a bad choice. On the other hand, I could join some no-name micro-cap LMM fund doing easy deals working a cushy work week, but then I totally lose the comp maximizing standpoint. 


So, somewhere in the middle is the ideal world. Finding that mid-point is tough. Part of me thinks a good place to look is funds that are on Fund II or III and have been growing AUM quickly. Another part of me thinks first time funds with Fund I > $500mm (or other evidence of solid pedigree) is a good way to pick. Another filtering mechanism could be location, looking for a nice fund in an unusual city (e.g., a JMI type) where there isn't so dense of a finance crowd that you get caught up in things. Lastly, an idea would be search fund, and then doing my own deals to roll up some tiny industry as I would be controlling my own schedule (though I'm unsure of the economics on that nor am I sure how much 2yrs of diligence-oriented PE really prepares you for that).


Thoughts??

 

I don't know a lot about it, but I've heard that FoF and/or co-investment, in general, are 'chiller' and will get you to that $10mm+ net worth by the time you retire.

Another thing would be to look at pension funds (such as CALPERS, OTPP) and/or family offices (YMMV). I believe you work around 50 hours a week with no/minimal weekend work. Though for pension funds this wouldn't be their PE arms but rather once again their passive investments groups (i.e., FoF

 
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Have worked for, now, 3 single-LP shops (i.e., fund structure in place, market (or above market) economics, notionally independent investment decisions).

Can say with some authority that private-side family offices are extremely variable, as you acknowledge, but this point deserves some amplification.

To start off, most shops that are under-the-radar focus on the lower middle market, with all the fun and hairiness that entails. Now, some details:

  1. Fund A, single LP is an entrepreneur and is CEO/CIO running a public strategy and a private strategy. Said LP was the day-to-day leader/managing partner and sole member of investment committee. I worked on the private side. CEO/CIO had an infinite investment horizon and wanted to underwrite to 25% IRR forever. Also, would never participate in any auction processes despite a mandate to deploy ~$50mm per year. So, we never did deals. On those rare occasions we did, they were so hairy as to defy belief. Comp was fine, and I rarely traveled. Solid ~60hr per week job.
  2. Fund B, single LP was a family that lucked into a business that cash flowed ~$500mm per year for 15 years. They also developed a tax strategy that allowed this money to accumulate tax free, which was wild. Our investment committee was family cronies who pretty much rubber stamped whatever we wanted to do. They would meddle some, and there was a constant stream of Family Business folks lurking in our office. GPs decided to raise an institutional fund, and then life was absolutely terrible for 18 months while we underwent that proctology exam. GPs were smart, we did deals, traveled a lot, ~70hrs per week. Pay was slightly above market. Learned a lot from the GPs and grateful to have had their mentorship.
  3. Fund C, single LP was a guy whose dad made a lot of money and decided to invest his piece himself. He had another partner who didn't come from money but was super sharp. Both had done the search fund thing with decent success. We did a lot of deals (including some that were highly speculative/had bad structures) and at times it felt like we were all figuring out how to be investors/stewards of companies and capital. I enjoyed this shop the most. Hours were very solid (50ish) because our team was well-staffed. Comp was above market. I traveled all the time (not factored into hours calc), which kinda blew, but at least I had Premier 1K for a minute.

I think the recurring themes here are that family offices are essentially a bet on whether the LP wants to be a GP, and, if so, whether the LP/GP is competent. The happy places are "no/yes" [if professional GP is not a neurotic jerk] and "yes/yes" obviously. Also, if your professional GP decides to do a first-time fundraise, your life is going to suck for a nontrivial period of time.

TL;DR: Private side family offices are in fact a crapshoot and I gave some examples, I guess.

 

This is a great post that I agree with emphatically. +1

If you've seen one "family office", you've seen exactly one family office. 

Here are a few comments I've made to similar effect: one, two, three.

I am permanently behind on PMs, it's not personal.
 

I can say with near certainty that the search fund route isn't compatible with "as little weekend work as possible" and "low risk"

Stanford Search Fund Study has some interesting datapoints on the industry. Notably, 34% of search funds don't even complete an acquisition. Of the 66% that do, 27% lose money for investors. So basically ~52% of search funds are unsuccessful.

 

You go to a top ivy league, work at a top bank/pe fund, graduate from H/S, and then start a search fund so that you can meet a 35% + IRR expectation from your investors. 

Biggest usury in the post mba ecosystem. Even if you're one of the 66% of searchers who finds a business to acquire, your investor group can fire you if you aren't growing revenues/profits fast enough. 

Better option would be to go to a LMM/MM buyout fund for better risk adjusted comp. 

 
Funniest

- Director of Corporate Development at F500 company founded by your Dad, who is controlling shareholder

- Director of Strategic Initiatives / Special Projects at F500 company founded by your Dad, who is controlling shareholder

- VP at your family's multi-billion dollar Family Office

- VP at UMM PE fund with strong track record founded by your Dad, who is Managing Partner

- Advisor to your Dad who is a senior government official / head of state of a country with middling HDI rating and questionable controls on access to / usage of state funds

Just spitballing here. Hope that helps. thx

 

Consider breaking it apart. Do a high-comp but demanding role for a defined period of years, all the while conducting diligence on shops that offer an attractive combination of compensation, culture, and lifestyle.

This solves the real problem, which is that there's no shortcut to learning which places are good and which aren't. You have to meet people (current or alumni of places you think might work), get them to like you, and after several interactions without any interrogative aspect, get them to open up about what it's really like. That can honestly take more than a year, especially if you're working. If you're in school, you can try to get it done before leaving, but the problem is that you only have a portion of the second year before you need to be signing an offer.

So there's some logic to taking a path that (a) pays you a lot and thus helps you get ahead on your nest egg while also (b) burnishes your resume such that whatever place you do land on after two or three years of getting to know people views you as an attractive candidate who is thoughtful and informed about why they want to leave halo-brand-name-firm to join them.

You don't want the search fund route because probabilistically, it doesn't get you there economically, and experientially, it doesn't offer what you want. You're stepping into a business that's so non-optimally run that you have to work more than you could imagine on stuff that's in no way exciting or highbrow. Yes, it's possible to strike a goldmine, but that's not common. 

You can do the fundless sponsor route, but it's backbreaking and emotionally draining trying to round up the equity to get a deal done that's sizeable enough to pay you really well. I went this route. It took a lot out of me and frankly it shouldn't have worked out. But it is possible to do a nine-figure TEV deal that pays you a real promote. You can hit your number on one thing, and then it's up to you to decide whether you're going to keep playing or just ease back.

I am permanently behind on PMs, it's not personal.
 

Other than UTIMCO, which endowments pay well? Any idea how comp scales?

 

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