Getting back into PE after a risky startup HF
Hey guys,
I'm in a bit of a quirky situation with my current fund. My background is pretty standard 2+2, GS / MS IBD followed by MF PE, after which I joined a startup HF that has a PE approach to public markets, which means taking activist stakes in small to mid-cap companies, and in many cases partnering up with PE funds to push a take-private. We've had a very good 2019 and vastly outperformed the S&P (as did most activist funds like ours given we don't hedge and mostly take long exposure), but post-covid, fundraising has been a challenge and my seat has become increasingly uncertain since I joined. I'll be hitting my 1 year mark and am re-evaluating if I'm comfortable with the risk profile of this fund (payoff is heavily carry dependent and currently the carry is out of the money). I took a pretty big pay cut from my MF comp (at least on a cash basis).
I've tried to explain my situation to HHs, and while some are receptive, others think it's a red flag that I wan't to leave so early, or at least think some PE funds might not look too favorably upon that given it shows a lack of commitment. I'd love any thoughts from this crew on how to message my story, and below are some ways of messaging that I'm noodling on:
1) Stick with what I mentioned above, i.e. I decided to do something more entrepreneurial by joining a startup fund and while I learnt a lot, covid has made fundraising trickier etc and i wan't more stability
2) Don't mention anything about my risk tolerance and focus the convo more on why classic PE is a better fit for me versus this hybrid public / private role
3) Mention that I joined right before we were raising our next fund (which is true), but as we were in the final stages of raising money for a particular activist target (which has consumer exposure), COVID hit and made fundraising delayed / uncertain and we don't know when we'll be able to close.
Any thoughts welcome here - I'm happy to go back to a senior associate role in PE after this (although since I'm the 1st investment professional hired at this fund I do work at the VP+ level almost daily) but I've been getting the impression that most PE funds are too rigid and wan't cookie cutter candidates only....
Thanks
First off, this story line is so prevalent, that just reading your very non-descript background, you could very well be one of 5-10 people I know in this exact situation. The market is completely saturated with people exactly like you. Which isn't exactly a good thing.
Frankly speaking, PE is very unforgiving if you've left and now want to come back. My prevailing theory is that PE guys are much more risk averse than the HF crowd and they have from time to time felt the pangs of regret from the anecdotal stories about friends/colleagues/peers that took the riskier step of going to a HF, and ended up have 8-digit payouts in a single year and maybe even have become cente-millionaires. Obviously not anywhere close to the norm. But human behavior is such those are the anecdotes draw your focus and you compare them to your own comparatively uninspiring trajectory. You typically want to feel good about the choices you've made that have brought you to this point in your life and so if you can somehow impact the rules of the game such that they reinforce the veracity of your decision making then all the better. You do this by making the cost of leaving PE very high. So a PE professional allowing HF monkey a free pass to return would basically be saying that you can set out on the HF path, seek to make millions quickly, and if it doesn't work out, the PE career is always available as your consolation prize. To provide you that free option would make cuckolds of every PE lifer (absent the top 2%) that didn't cash in on that free option.
That's a long winded way of saying I don't think it will be easy, which is what you've already come to learn from your convo with HH. I think it has less to do with your duration, and more to do with the fact that the PE->HF->PE path is not an easy one to traverse.
That said, I don't think its insurmountable. I think what you should be doing is managing your career / story in a way that you're not making it any hard than it already is.
1- I wouldn't necessarily look to move ASAP. As you said, it's a red flag for people. You already have an uphill battle, you're just making your story incrementally more hairy.
2- Similarly, I don't know that I would broadly engage with HH right now. It will be much much harder to move ASAP, so if you engage HH now, and 1-2 years from now you're still looking, you're stigmatized, and they just assume that you've been looking to aggressively move for a long time without any success.
3- I would focus on managing your current experience in a way that best positions your resume for exit; i.e., maybe spend more time on aresa/deals even if its a complete waste of time, because it will be more marketable for the types of opportunities you'd like to be in. So making up a situation.... if your firm mostly does post-reorg equity, but you want to be doing special sits ax the cap structure investing, try to take initiative in that area even if it short-term costs you productivity/political points, because long-term it'll make you more marketable for what you really want. I would NOT advise spending your time in a way that impairs you at your current role, because if you get pushed out/fired, that makes your suboptimal situation even worse.
4- I would bide my time for another year or two, so you can spin a story from a position of strength. Fund doing well, I've done well, not the right platform for me because of X, Y, Z (largely investment style).
5- when the day does arise, you may have more success in targeting firms where the line between HF/PE is a bit blurred. SilverPoint, SVP, etc.
At the lesser known places, you'll have a different issue. Ironically, at the smaller less elite platforms your pedigree will actually work against you.
In theory, someone at Platinum Equity should be thrilled to have a Princeton --> GS --> KKR hire.
In reality:
1- there may be a perception that you're a super blue chip pedigreed guy that is down on your luck and so is looking at the next rung down
2- they may actually not want blue chip pedigreed people because it goes against their culture / ethos and the stuff you've done just isn't as relevant as hiring someone from SunCapital
3- some of the people interviewing you may very well be intimidated by a potential threat that (on paper at least) looks like a rockstar and could come in and in the next handful of years snag one of scarce partner nods that he himself had his eye on
4- back to human behavior, as silly as they may sound, I actually think that people at tier 2 tier 3 firms love the dopamine shot they get from assessing a highly qualified candidate that on a comparative basis bested them earlier in life (i.e., went to better school, landed better jobs) and deeming them not worthy. It sort of like the short sloppy frat boy working in sales at FactSet abusing girls way out of his league on online dating apps that he in the analog world would never have the opportunity to swipe right/left on.
All that said, there's also a lot of straight laced and confident people out there, that would love to get a "good buy" on a rock start Sr. Associate they ordinarily may not be able to hire. I'm just trying to help you understand some of the things you'll have going against you, so you can try to adapt accordingly.