RE vs PE vs IB Trajectory

Ello Lads and Ladettes,

Not sure if I'm the only one that thinks this. And maybe biased since I'm posting this in the RE chat. But what do you think is the most profitable/worthwhile industry in the end. I work in debt/equity origination now, but goal is to Inevitably start my own investment/syndication shop with small/medium sized LP's and syndicated capital. Would IB and PE outpace real estate investors long term? I like CRE just because of the time freedom compared to PE/IB. Why are your thoughts? Is the 10 - 15 year stint in IB/PE worth it to become an MD with very little time but a large compensation? Genuinely wondering.

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Comments (7)

  • Associate 1 in RE - Comm
Apr 30, 2021 - 11:49am

Just talked to a former IB guy, turned RE guy, turned owner of his own RE shop (small, around 10 employees).

He mentioned he took a $250k pay cut when he moved to RE, but he's now worth around $100mil.

It really depends on your individual success. If his shop didn't take off, maybe IB would have been the better option.

If you're talking about always working for someone else? You're splitting hairs. You should do very well working in IB or PE. But you'll never touch $100mil working for someone else

Apr 30, 2021 - 1:53pm

IB is probably the best risk adjusted return. If you stay and slog it out, you will NOT be poor. IB is slightly more recession proof than any buy side shop as well. Now you seem to be talking about OWNING your own RE shop, which sort of means you have to compare it to OWNING a PE shop. PE will likely again offer a higher return since it deals with higher returning assets. RE is by far the easiest place to start out on your own since debt is easy to get. Regarding life-style, no one is going to be able to tell you if working long hours and being rich is worth it compared to working fewer hours/having more fun and being well off. It is a personal choice. 

Apr 30, 2021 - 2:28pm

You can't really compare having your own PE shop to having your own RE shop, because one is vastly easier. Starting a RE business (i.e. starting to invest in properties by yourself or with a few partners) is possibly the easiest business to get started - though very capital intensive. Starting a PE fund - well that might be one of the hardest businesses to start, and is only possible after 15-20 years in the industry.

To answer OP's question - there's obviously an enormous range of outcomes possible, but as a general rule you're going to make more in a career in PE than you would in a career in RE. Early in your career, you'll probably find it easier to switch from IB/corporate PE to RE than the reverse. But, you will also likely work way more, so it's a tradeoff. It's cliché, but my advice would be to just forget the money, because realistically you're going to be fine either way, so just do what interests you more. We're talking about what you're going to spend an enormous chunk of your lifetime doing.

Apr 30, 2021 - 3:28pm

I don't think it's fair to compare any of these three with the assumption that you start your own business. If you start your own RE/PE/IB shop and it becomes wildly successful then so will you, but if you start your own shop and it's a massive failure, then there goes your savings and a possible bankruptcy. The only fair comparison is a regular linear career path at any of these. Each have their own hurdles though:

IB has the biggest hurdle in the beginning. It's tough to get the junior SA position or the FT offer, but from there it's relatively smooth. For example, unless you completely mess up, you can survive your two years there. Let's say you start off at a top BB. Even if you weren't at the top of your game you can do Analyst there, Associate at lower BB, VP at top MM, Director/MD at low MM. I interned at a boutique and did a lot of research on boutique firms and this path is relatively common. My point here is that even if you're not the most competent, if you start high, you can always fall with a promotion. But then obviously if you're good you can maintain, or even increase where you're at. Absolute worst case, you're one of the people stuck in a VP position and you're making 500k a year.

PE has the most hurdles. Not only do you have to come from a top tier background, you have to compete with everyone in similar backgrounds to get the associate position. So you have that initial first job hurdle. Once again, like with IB you can fall upward, but it's much more difficult. The next hurdle is after your 2 years as an associate. This is where the pyramid structure is real. Are you at a firm where you'll be a senior associate to VP track without B-school? Do you have to get into HBS, GSB, or maybe Wharton to move up somewhere? Now you're competing against everyone else there who wants a post B-school PE position. Literally every promotion is a hurdle, unlike IB where there's more turnover and lots of places you can lateral to.

I know the least about RE. But even at the boutique I interned at in a LCOL city, the pay was 75k base with a bonus of 30-45k for an analyst. They had solid deal flow, other boutiques won't be this good. The point is, even a comparatively low-prestige boutique in IB can start you off with 105k in pay. The average MM/BB bank will probably pay you 140k your first year. What's the average RE salary? Way lower. As an employee it's incredibly rare to ever make the money that the people on the top at a bank or PE firm make.

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May 3, 2021 - 12:18pm


 The only fair comparison is a regular linear career path at any of these. Each have their own hurdles though:

Except this isn't true.  If you surveyed the average low to mid level person in investment banking, or even PE to a lesser extent, you'd find that the number of them who want to start their own bank, or even their own fund, is much much lower than the comparable number of real estate developers who want to do their own deals.  It is vastly easier to start a RE development shop, so justly blithely comparing it to starting a PE fund is stupid.

The correct argument is that there is a risk/reward spectrum for all these industries.  IB requires almost no risk, because you're never on the hook.  So you can make a lot without having to worry about putting your own capital at risk, but there is effectively an upside on your pay.  PE you can take that further, because you can certainly go out on your own and put your money to work on deals.  And real estate is far and away the easiest to do your own thing, but you have a ton of risk when it comes to guarantees, capital calls, etc.  If you take the low risk path in real estate, you'll make far less than your peers.  The high risk path can pay you a lot more than even the most successful investment bankers can hope to make.

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