Advice Needed: Private Equity Co-investing vs Private Equity Secondary

zcl's picture
Rank: Chimp | 6

I recently received two offers, both of which are from private equity fund of funds. One of them is a role in the private equity co-investment team while the other is for the private equity secondary team. I would like to seek opinion as for which one is a better option in terms of career prospect.

Thank you very much!

Comments (22)

Mar 16, 2011

it depends on two things: (1) what you ultimately want to do and (2) which firms your received offers from.

i know this space very well.

"Investors are always looking for the holy grail, the next great idea that will carry performance and pension returns for the several years. Right now its 'alternative investments' - private equity, hedge funds, the assets that have outperformed public eq

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Mar 16, 2011

Hi, Wannabeneachbum,

The secondary offer is from an established FoF with AUM above $20bn. Its latest secondary fund, raised in 2008, is about $2bn. The co-investment role is from a much smaller FoF with about $6-7bn AUM.

The comp level of both offers are the same. In terms of work life balance, the secondary role requires a longer working hours, 60 hr/wk usually while the co-investment role is more laid-back with about 50 hrs expected. Both does not require weekend work.

PE secondatry is gaining popularity these days so i feel it may be the next big thing within the PE industry. On the other hand, co-investing is more similar to direct PE investing and thus I think may offer better exit in the future since you can either continue doing co-investing role in FoF or with an institutional investor or jump to direct investing.

So I am very torn now and would like to know what your thoughts about this.

Mar 16, 2011

Secondaries do not provide very good exit opps into direct PE as most people in direct PE have no idea what secondaries entails. Secondaries will continue to grow as AUM in the PE industry and the # of institutions that invest in PE increase. It is really its own animal. You can make a lot of money doing secondaries if you wanted to make a career out of it. Not sure what you did before secondaries, so depending on what that is, you may still have career options. How much are the offers for? If you want to PM me the names of the firms, I will give you my thoughts on them. I am not in fund of funds, but I know most of the secondaries and co-investment players very well. Some firms have much stronger reputations than others...

"Investors are always looking for the holy grail, the next great idea that will carry performance and pension returns for the several years. Right now its 'alternative investments' - private equity, hedge funds, the assets that have outperformed public eq

Mar 17, 2011

Go for co-investing. Better exit opps by far. What's your background? Depending on what you did before you may still be able to get into direct PE but it's going to be a lot easier coming from the co-investment standpoint.

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Mar 17, 2011

Interested as well

Mar 17, 2011

I just finished my first year at an M7 b-school and have a few classmates who came from PE secondaries shops. Obviously this number is less than the amount of students who come from a direct background, but I think this is more due to the fact that there are just more applicants from the direct side. In my experience, I have seen more people jump from traditional buyside to secondaries and have not really seen many peers jump from secondaries straight to direct. As an associate in secondaries, you develop some applicable skills, including the financial modeling and really thinking deeply about valuation. You do conduct diligence, but from what I have heard from friends in that world, you tend to leverage the sponsor's diligence a lot. Again, this is third-degree information from speaking with friends in the space.

A lot of very prominent firms engage in both FoF investing and co-investing in individual deals (think Adams Street or CPP). When you think about it, this actually makes a lot of sense, since these firms have deep relationships through their investments in these traditional PE firms and have a significant capital base, so they are usually the first to receive the call when a deal needs to be filled out with additional capital. The firms who are invested in the strong, consistently returning funds in the space usually do pretty well from a returns perspective. From what I hear, pay is not quite as high as traditional PE, but work life is better because you leverage a lot of the sponsor's diligence and usually are not the lead on the deal. There are a lot more firms who are LPs in PE funds looking to significantly build out a direct investing presence. Again, this experience has some overlap with direct PE investing, but you aren't the lead on any processes, so that may serve as a setback in trying to move to traditional PE.

I don't have any intel on firms that might engage exclusively in direct co-investing (no FoF business). My guess is that these firms may have trouble competing for deals, since the first call is usually made to the guys outlined above.

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Mar 17, 2011

Went through final round with a top secondary - will post more when I hear back

Mar 17, 2011

Update: slowest process ever and fairly disorganized

Mar 17, 2011

How were the questions - interested, as I have a first round with a smaller secondaries shop. Were there many technical (accounting/LBO) questions that you faced during the finals?

Thanks in advance for any insight.

Mar 17, 2011

How were the questions - interested, as I have a first round with a smaller secondaries shop. Were there many technical (accounting/LBO) questions that you faced during the finals?

Thanks in advance for any insight.

Learn More

9 LBO Modeling Tests, 10+ hours of PE Cases and 2,447+ interview insights across 203 private equity funds. The WSO Private Equity Interview Prep Course has everything you'll ever need to break into the competitive PE industry. Learn more.

Mar 17, 2011

...

Mar 17, 2011

I believe secondaries and co-invest are highly regarded in the marketplace - particularly if one is at a top firm like HarbourVest Partners, Coller Capital, etc. One side of secondaries bears a very close resemblance to direct investing in that groups evaluate portfolio companies on a granular level and perform very similar diligence and modeling as do the direct firms. The other side of secondaries - the structuring of LP-interest transactions - is a bit higher level and is more transaction-oriented. All in all, working in secondaries gives you an unparalleled view of the marketplace as well as highly relevant experience, so at the junior level, it could be a great opportunity to explore the world of PE before getting an MBA and choosing a direct shop.

Co-invest is also very similar to direct investing, but you typically don't have to do as much diligence since you aren't putting as much skin in the game, and you trust the other investors, and in situations where you aren't taking the current equity owners out - you can trust their incentives are aligned with yours.

From my perspective, Direct, Secondaries, and Co-invest are more interesting than FoF, but I don't have any experience in FoF so I can't really say.

Mar 17, 2011

I know a guy who moved from a PE FoF/Secondaries firm to a Direct middle market buyout firm in Chicago. You won't have a shot at the Blackstones, Carlyles of the world though if you work at a PE FoF/Secondary/Co-invest fund.

Mar 17, 2011

Based on your goals, do:

1. Coinvest
2. Secondaries
3. FoF

Pretty simple. If you get stuck into a pure FoF role you're going to be screwed so make sure you gun hard for coinvesting.

Mar 17, 2011
SanityCheck:

Based on your goals, do:

1. Coinvest
2. Secondaries
3. FoF

Pretty simple. If you get stuck into a pure FoF role you're going to be screwed so make sure you gun hard for coinvesting.

You will only really have a shot at PE if you get on a deal team, which is ideally co-invest or secondaries. My experience is that most FoF's dont hire recent grads to the deal teams though...they want 2 yr IB

I

Mar 17, 2011
SanityCheck:

Based on your goals, do:

1. Coinvest
2. Secondaries
3. FoF

Pretty simple. If you get stuck into a pure FoF role you're going to be screwed so make sure you gun hard for coinvesting.

Thanks - what kind of skills/modelling are most applicable to coinvset and secondaries? Trying to find ways to stand out during training to get placed into one of them.

Mar 17, 2011
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Mar 17, 2011