AMA: GS Special Situations >> Founder of a Private Equity Startup

powers99's picture
powers99 - Certified Professional
Rank: Orangutan | banana points 291

My experience bridges three worlds: investment banking, private equity, and startup life.

Here's my story, in a nutshell:

I graduated from the University of Texas at Austin's Plan II and Business Honors programs and was hired directly out of undergrad to GS. I worked in the firm's Special Situations Group, analyzing private equity and debt opportunities. I closed 11 private equity and debt transactions across a wide range of industries, which accounted for over $600 million of investments. On a day-to-day basis, I managed ~$300 million of assets directly.

Since leaving the firm, I founded Nextvest, which offers sophisticated HNW members direct investment access into private equity deals. Nextvest partners closely with a growing number of highly-trained ex-PE professionals who source and negotiate deals as independent sponsors in the lower middle-market (generally, $5-25mm equity check). We run each deal on our platform independently, so our investors have the freedom to choose participation and allocation in each deal. We pool checks together to get our investors the same terms as the big players. Our greatest asset is our advisory team, which includes a former CIO of Citigroup, a founder of the largest PE firm in Asia, partners at the largest US PE funds, and other impressive gray hair.

I'm a long-time member of WSO, and I'm grateful to those who have shared their perspectives with me along the way. This is my first AMA, in hopes of paying it forward. Ask away!

[EDIT 3/28 @ 1:45p] FYI, I'll be fairly responsive on this thread throughout the week. No promises after that.

[EDIT 4/5 @ 4:54p] I'm a couple days behind replying but expect to catch up in the next day or so. Thanks for the incredible response - I'm planning to keep my responses going through 4/10 as of now.

[EDIT 5/2 @ 7:56p] Still occasionally will take a look at this. Feel free to add more comments - timing will be sporadic.

Comments (103)

Mar 28, 2016

thanks for offering to do to the AMA!

WSO's COO (Chief Operating Orangutan) | My Linkedin

Apr 4, 2016
AndyLouis:

thanks for offering to do to the AMA!

Thanks Andy!

Mar 28, 2016

Great story. How did you receive funding for your company? How difficult was it to make the transition from working at a bank to running your own business?

Apr 4, 2016
Gangster Putin:

Great story. How did you receive funding for your company?

Thanks! We're entirely self-funded to date. We'll bring on outside funding in the not-too-distant future, but that's a choice, not a requirement.When working a lot (as many of you know), there's not much time to get around to spending money, and I saved the overwhelming majority of what GS paid me (after-tax, of course).

Gangster Putin:

How difficult was it to make the transition from working at a bank to running your own business?

EXTREMELY hard. Two reasons: (i) starting a business is generally hard; (ii) starting a new type of business with an as-yet unproven business model is even harder. Both of these compound the demands on a skill that junior bankers don't ever use: prioritization. Now, that's overstating the truth, because, yes, things are prioritized (like that slide over this one and that analysis over this one, etc.), BUT rarely if ever does a junior banker have any real question about what to do that day.

Starting a business = a prioritization exercise. There's an infinite amount of possible work to do - figure out what matters.

    • 6
Mar 28, 2016

If you could go back to your freshman year, what would you have done differently? What do you think made you stand out in front of GS recruiters?

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Apr 4, 2016
etxGS:

If you could go back to your freshman year, what would you have done differently?

HAH. Fair question. To be honest, my freshman year didn't matter much. I took hard and interesting classes, got good grades, and transferred into the business school at the end of the year. That summer, I worked for a small investment advisor in Houston.

etxGS:

What do you think made you stand out in front of GS recruiters?

A good friend of mine called me up one day and asked if I'd like to start an investing student organization. As the requisite finance nerd, of course, I said yes. That worked out well (they're doing better now than ever: USIT). But, the biggest filter is Resume Drop --> Interviews, and I spent an OUTRAGEOUS amount of time on my resume. It's a single sheet of paper that defines your story (in the eyes of the recruiter). Didn't know anyone on the inside before interviews, but spent significant time preparing for those as well. Be a person other people want to work with.

    • 2
Mar 28, 2016

Amazing story. I've heard the GS Special Situations' interview is one of the hardest at GS. How was that process / any advice for undergrads that want to replicate your path?

Apr 4, 2016
Studentofthegame:

Amazing story. I've heard the GS Special Situations' interview is one of the hardest at GS. How was that process / any advice for undergrads that want to replicate your path?

It was long. An hour on-campus at Texas and then a full day of 10 or 12 (honestly can't recall anymore..) of back to back 30 minute sessions at the office. (Yes, there was a lunch "break", which was a genuine break, but, really, do you think that's not evaluated as well?) Technical questions for interviews there were generally another step up from what I got at other groups. Getting in to the process is (very likely) the hardest part, so again as above, do interesting/relevant things, get good grades, and spend quality time crafting your resume.

Mar 28, 2016

Hi Powers99,

Thank you for taking the time out to do this AMA. I will be working as a restructuring summer analyst at LAZ/PJT/HL. I am concerned that the restructuring space is not only slow right now, but also might pigeonhole me alot early on. Would you advise me starting off my career in a more versatile group (ie M&A)? To add more color, I am not obsessed with restructuring, but do have interest in the space.

    • 1
Apr 4, 2016
investmentbanker1994:

Hi Powers99,

Thank you for taking the time out to do this AMA. I will be working as a restructuring summer analyst at LAZ/PJT/HL. I am concerned that the restructuring space is not only slow right now, but also might pigeonhole me alot early on. Would you advise me starting off my career in a more versatile group (ie M&A)? To add more color, I am not obsessed with restructuring, but do have interest in the space.

Don't worry about slowness of restructuring.

One, there's still plenty of time for things to get exciting for your summer (for better and worse). Two, you'll be a summer analyst. Exactly zero of the deals I worked on my summer moved forward, but I learned a lot, which was my focus. Three, if you decide to continue full-time, there's even MORE time for things to get exciting.

We're not quite "due" for that to happen, but leveraged loans have been pretty boring for a while now and they are not always boring (take a look: here).

To my mind, restructuring is versatile. A lot of finance knowledge boils down to "how do I avoid making this kind of mistake", and you will get to see plenty of dumb things.

I have a limited sense for recruiting paths coming from the role you describe, but there's likely a good story and experience.

Free advice = worth what you've paid for it.

    • 4
Mar 29, 2016

There is a lot of opportunity for restructuring in the energy space, specifically E&P and OFS. From what I heard Lazard moved some bankers down to Houston to better handle the volume.

Mar 28, 2016

What was your position when you left GS?

Do senior people in GS SSG have their own p&l and are comped accordingly?

How do you think the liquid team compares against a stand alone special sits /credit HF? In Terms of nature of work, politics, pay, autonomy and hierarchy, type of investments, etc.

Are there actual synergies being part of GS?

Thank you

    • 1
Apr 4, 2016
Average Rainmaker:

What was your position when you left GS?

Do senior people in GS SSG have their own p&l and are comped accordingly?

How do you think the liquid team compares against a stand alone special sits /credit HF? In Terms of nature of work, politics, pay, autonomy and hierarchy, type of investments, etc.

Are there actual synergies being part of GS?

Thank you

Wow, lots of questions. First, a caveat - all but one of the transactions that I've ever approached professionally was entirely on the private markets side (so much less familiar with the liquid side of the world). Let's go from the top: (i) lowly analyst; (ii) can't speak to this from personal experience, obviously, but GS is very focused on (a) individual performance incentives and (b) teamwork, which results (usually) in group-level comp pool allocations that are then shared differentially to outperformers; (iii) many more restrictions on the liquid team (particularly in a post-crisis regulatory framework; Dodd-Frank, Volcker, etc. do impact day-to-day within large banks) - nature of work generally the same but with some regulatory overhang, politics - it's the investing arm of a big bank, collaborative and competitive, pay - good, autonomy - highly dependent on where you sit, type - generally structured with favorable "risk-adjusted returns" on an unlevered basis; (iv) actual synergies - infrastructure and resources and people (I could always rely on anyone in my group or in other groups to get their job done).

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Mar 28, 2016

Thoughts on the GS SSG? What were some of the biggest things you learned there?

Apr 4, 2016
KJA16:

Thoughts on the GS SSG? What were some of the biggest things you learned there?

Well run investment group that focuses on quality and differentiated deal origination and deep diligence. Two biggest things I learned about (still a long way to go on both fronts..): (i) how to structure and evaluate deeply an investment thesis; (ii) how to consider the legal structure of an investment and negotiate the same (this boils down to "make sure the words in the contracts say that you're actually getting what you thought you were getting").

    • 1
Mar 28, 2016

Just checked out your website. Cool idea. I'm just curious why a PE firm would partner with your platform, or why their LPs would allow it either. Then on the target side, I'd be wary of more information floating around. It can see that it totally makes sense from your client base just not sure how anyone else really benefits. Not trying to be a hater, I respect the hustle for sure, just curious how you reconcile some of those things.

    • 2
Apr 4, 2016
ke18sb:

Just checked out your website. Cool idea. I'm just curious why a PE firm would partner with your platform, or why their LPs would allow it either. Then on the target side, I'd be wary of more information floating around. It can see that it totally makes sense from your client base just not sure how anyone else really benefits. Not trying to be a hater, I respect the hustle for sure, just curious how you reconcile some of those things.

Thanks! And, to be clear, your points are all absolutely correct. We generally don't partner with committed capital PE Firms; instead, we work with independent sponsors (i.e. ex-Principal at XYZ major PE firm or ex-VP/MD at MegaBank). Most of the groups we've worked with actively chose not to spend 18-24 months raising a fund (as is the necessary timeline these days) and immediately started finding deals to execute, raising capital deal-by-deal. That structure allows us to play nicely with the sponsor (who wants a source of passive investor capital) and our syndicate looks like an LP in that particular deal. Regarding the target side and information issues - investors sign up to an NDA + non-circ to view details on a given transaction. Of course, nothing in that is perfect, but we've found that incentives are well-enough aligned. Very good questions - much appreciated.

Mar 28, 2016

How many deals have been successfully closed on your platform? Were all of these independent sponsors deals (fundless sponsors)? What portion of the sponsor carry is Nextvest entitled to? What is the typical deal size (LTM EBITDA and EV)? Who is more difficult to get on your platform: LPs or independent sponsors and why?

You seem to have good experience in the mid/upper market of PE, but lower/lower-middle market PE is a different beast. Have you had any unique challenges that are worth noting as you enter into a different market (leverage levels, deal structure, vetting independent sponsors, quality of diligence & info available, competing against established funds)

    • 1
Apr 4, 2016
spyvspyder:

How many deals have been successfully closed on your platform? Were all of these independent sponsors deals (fundless sponsors)? What portion of the sponsor carry is Nextvest entitled to? What is the typical deal size (LTM EBITDA and EV)? Who is more difficult to get on your platform: LPs or independent sponsors and why?

Great questions - thanks spyvspyder.

We've closed four deals since inception and have partnered with independent sponsors on each. Nextvest's share of the sponsor carry varies significantly across deals (i.e. with a new independent sponsor NV will get a much more substantial split vs. with a senior PE professional acting as sponsor).

Actually was just cutting numbers on what our investing universe looks like over the past year or so. Median EV is about $32mm with $3-5mm EBITDA as a middle range. We've looked at structured growth equity deals, buyouts, and distressed, so a straight assessment off those numbers won't be terribly informative. For buyout/distressed deals, average EV multiples come in just a bit less than 1x revenue and 5x EBITDA.

spyvspyder:

You seem to have good experience in the mid/upper market of PE, but lower/lower-middle market PE is a different beast. Have you had any unique challenges that are worth noting as you enter into a different market (leverage levels, deal structure, vetting independent sponsors, quality of diligence & info available, competing against established funds)

Most of the transactions I closed at GS were in the $15-50mm range, so this space actually is fairly familiar to me. Slightly smaller end, but much the same.

That being said, leverage levels are (justifiably and correctly) lower for smaller companies (as are purchase multiples - although generally LTV %s can go a bit higher for bigger deals - not always a good idea..).

Deal structures are usually a bit more straightforward (although we've seen PIKing preferred equity with liq. pref., so nothing is out of the question).

Vetting sponsors is one of the pieces we spend a lot of time thinking through and improving - by having the right sponsors on the platform, we improve certainty around diligence. Generally, the companies are (unsurprisingly) overwhelmed and understaffed for PE-style diligence info pulls and that's always fun. There's a good reason why outsized returns still exist in the lower middle market. You have to figure out the company's actual numbers..!

Competition against established funds is a thing. The vast majority of committed capital funds don't chase deals with a $10mm maximum investment, but some do. The space is really quite fragmented, and there are an increasing number of independent sponsors.

Mar 28, 2016

Usually these "AMA's" aren't that interesting, so this is great, thanks for the time.

1) Can you speak a bit more about SSG's role in GS? More specifically, what's the difference between GS's (that I am aware of) 3 PE type funds (i.e. Direct Private Investing, SSG and Principal Strategic Investments)? Also in SSG, as an analyst, did you work on IBD / advisory projects / engagements in addition to investing / lending?

2) Nextvest sounds like a really interesting platform, are you guys - for lack of better term - hiring on the origination side?

Thanks

    • 1
Apr 4, 2016
Stringer Bell:

Usually these "AMA's" aren't that interesting, so this is great, thanks for the time.

1) Can you speak a bit more about SSG's role in GS? More specifically, what's the difference between GS's (that I am aware of) 3 PE type funds (i.e. Direct Private Investing, SSG and Principal Strategic Investments)?

Thanks Stringer Bell, appreciate it!

Simply put, SSG is one of the main branches within Investing and Lending. That is to say, SSG generates profits through successful investments (vs. success fees in IBD or spread-taking in S&T or [something, IDK (nor does Matt Levine to be fair)] in Equity Research).

As you mention, there are a few different principal investing groups within GS. We'll call them: MBD (for Direct Private Investing, because it's actually housed within Merchant Banking), SSG (obvs), and PSI.

For reference, Matt Levine is fantastic, so here's another of his articles for reference on the Volcker Rule, which matters.

[CAVEAT - I DIDN'T ACTUALLY INTERACT WITH OR WORK IN THIS DIVISION SO, ]
I know the least about MBD, so let's start there. MBD raises substantial outside capital (well north of $100bn last I checked) into investment vehicles - for one or both of equity and credit investing. GS invests a small percentage of the capital and acts as general partner for these investment funds. For the chart in the Volcker Rule link, MBD is in the bottom part that is green.

I know the second least about PSI. The key word here is STRATEGIC. Let's imagine that you own SuperTech for Finance, Inc. Our imaginary STFI is a financial technology firm that allows you to [store/analyze/process/filter/etc.] [insert financial product or internal process here] information [quickly/reliably/securely/etc.]. Now imagine that you get GS as a client. That's pretty cool. Now, GS sees STFI as a product they'd like to use (as would other banks), so PSI would invest and sign up GS as an anchor client. This is the green box in the top-right corner of the Volcker Rule link. [massively overgeneralized, but the gist is STRATEGIC investments]

Natch, my familiarity with SSG is strongest. It's the on-balance sheet investing arm. Ballpark is low $10bns of AUM. SSG also lands in the top-right corner's green box of Volcker Rule chart. (as an aside, S&T lands in the top left corner's green box) The group can invest ~$25m-1bn per transaction across capital structure and industries. Most deals are on the smaller end of that range. Deals are characterized by industry specialization, deep operational diligence, substantial legal structuring, and (often times) significant complexity.

Stringer Bell:

Also in SSG, as an analyst, did you work on IBD / advisory projects / engagements in addition to investing / lending?

No. I don't recall any instances but do recall conversation around occasional wall-crossing in both directions (i.e. IBD to discuss with SSG and vice versa). SSG and IBD are run completely separately.

Stringer Bell:

2) Nextvest sounds like a really interesting platform, are you guys - for lack of better term - hiring on the origination side?

Thanks

Yes - we're always looking to find sharp investors running transactions. Feel free to DM me if interested in discussing further.

    • 6
Mar 28, 2016

Helpful reply, thanks and will do.

Mar 28, 2016

Why start a company instead of continuing doing what you were doing? Was it hard for you to make that decision?

Apr 4, 2016
moneymogul:

Why start a company instead of continuing doing what you were doing? Was it hard for you to make that decision?

Why? I'm just going to parrot Charlie Munger all day, "invert, always invert!"

Why not? Opportunity cost.

The only sane reason to pick a course of action is that the opportunity costs are all inferior. (To be clear, opportunity costs are not a strictly financial assessment, although that's the easiest part to measure/guess.) And frankly, it was a hell of a mountain to overcome.

I, as you might have guessed, enjoyed my time at SSG. It paid very well, and I had plenty of responsibility (in almost every case) and a degree of autonomy (vs. banking, anyway, which is like being the biggest shrimp).

To my mind, when you evaluate the prospects of a path, there are two things at play (i) the likely (and obvious) factors and (ii) the range of unknowns.

SSG is easy to evaluate: scores high marks on almost all of the obvious factors with (for me!) a diminishing rate of learning / knowledge accumulation. The range of unknowns is quite limited (I'll be working at my desk on SSG-style projects in the GS framework for all of my professional and most of my waking hours).

Starting a company is hard to evaluate: scores poor marks on the obvious factors and may or may not have a substantially varied outcome across the range of unknowns. You'll learn a lot or get lost trying, no matter what.

Between my co-founders and I, we each found the idea of Nextvest (shameless self-promotional plug!) worth the ridiculously steep learning curve of business-building in exchange for higher-certainty and quite good opportunity costs.

    • 1
Mar 28, 2016

Hi there,

Thanks for doing this AMA. I'm also really interested in entrepreneurship but also finance and have been trying to just see what I fall into. However, this has been a really poor strategy for IB since. While I've gotten full-time interviews, I've been consistently dinged as a bad cultural fit because I come across as very interested in startups. However, after 15 months of working on my own startup, I've decided against pursuing it full time and would rather do banking. I still haven't ruled out eventually going back to the tech entrepreneurship world but then I'm wondering if I should just go work in the tech world unless I see myself staying in finance my whole life. What are your thoughts?

Thanks in advance!

Mar 28, 2016

I've had similar problems at other interviews before. Interests too eclectic for corporate work, resume too financey for startups, etc. I have multiple versions of my resume to avoid this.

    • 2
Apr 4, 2016
IBoverYC:

Hi there,

Thanks for doing this AMA. I'm also really interested in entrepreneurship but also finance and have been trying to just see what I fall into. However, this has been a really poor strategy for IB since. While I've gotten full-time interviews, I've been consistently dinged as a bad cultural fit because I come across as very interested in startups. However, after 15 months of working on my own startup, I've decided against pursuing it full time and would rather do banking. I still haven't ruled out eventually going back to the tech entrepreneurship world but then I'm wondering if I should just go work in the tech world unless I see myself staying in finance my whole life. What are your thoughts?

Thanks in advance!

I echo moneymogul.

Remember that your resume is generally the ONLY story that a recruiter / interviewer has to go on. Your submitted resume should reflect in each case why you are qualified, interested, and capable for THAT job. Not 'generally awesome' (although that might work from time to time), even outside of finance (crazy, I know) - resumes are expected to be skill- and experience-specific to the position at hand.

Mar 28, 2016

Thank you for taking the time to do this.

    • 1
Mar 28, 2016

How do you make money? Charge investors a fee for entering a deal? Receive a portion of carry? If the latter, how are you staying financially afloat until investments are sold or have an IPO?

Apr 4, 2016
Lex120:

How do you make money? Charge investors a fee for entering a deal? Receive a portion of carry? If the latter, how are you staying financially afloat until investments are sold or have an IPO?

We aim to not lose money through a management fee. Cost of legal set up and administrative maintenance of SPVs is quite low given that they're form entities (around $10k for lifetime of vehicle). Profitability (as you allude, eventually) comes from a negotiated share of carry on the deals.

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Mar 28, 2016

Thanks for the thread.

Can you also comment on the liquid/public market investing team at SSG? Are they primarily focused on debt (such as distressed) or equities? Any details would be great.

Apr 4, 2016
halfstep:

Thanks for the thread.

Can you also comment on the liquid/public market investing team at SSG? Are they primarily focused on debt (such as distressed) or equities? Any details would be great.

I'm going to again refer to the Volcker Rule article. The chart, as Matt says, "is nonsense"; blame the Volcker Rule.

As you can see in the middle-top of the box (pictured in that article), it is red. Red is bad, and bad, in finance anyway, is enforceably illegal. (For a weird example, is it securities fraud for Exxon Mobile to fail to disclose its research on global warming as an investment risk? Not clear! BUT, can you guess who my favorite finance author is yet?) Regardless, Volcker is a new rule that was pre-dated by the liquid investing arm of SSG. With the new rule, I understand that some of the strategies shifted toward longer-dated holds.

I don't know what's in their portfolio, but special sits tends to lean toward more structure (i.e. toward credit), so debt / distressed debt. If you google SSG, you'll run across an investment in Sbarro.

    • 1
Mar 28, 2016

Thanks for doing this!

How much technical knowledge about coding/website/technology-building did you have when you decided to take the plunge from GS? What inspired you to make this career change?

"A modest man, with much to be modest about"

Apr 4, 2016
Janet Yellen's Fuckboy:

Thanks for doing this!

How much technical knowledge about coding/website/technology-building did you have when you decided to take the plunge from GS? What inspired you to make this career change?

Absolutely! Thanks for weighing in, Janet Yellen's, wait really? That's the name you picked? Anyway.

I took enough CS to be dangerous to myself and others in college (was a class away from a minor or certificate or similar). Also built an app for myself to help manage my student organization communications. Almost all of the specific technical knowledge used today to build our infrastructure is new to me. However, if you understand the principles of coding and can read documentation (I actually think computer science and law have a LOT in common here), programming is just "tell the computer what to do" and it does what you told it to do.

As for 'career change', I can't tell if this is a dramatic shift of my career or a surprisingly minor one. Of course, doing the whole 'start a business' thing is quite different than continuing at GS. BUT, I've stuck around in the transaction world and, in that sense, not much has changed.

Search the page for 'opportunity cost' for a longer answer around 'why'.

Mar 28, 2016

1) How did you pick your co-founders, and how did you know you found the right team?
2) How did you decide now was the right time for entrepreneurship, and that this was the idea worth your time?

Apr 4, 2016
petergibbons:

1) How did you pick your co-founders, and how did you know you found the right team?2) How did you decide now was the right time for entrepreneurship, and that this was the idea worth your time?

Co-founders. It's kinda like dating except you'll spend more time together. Actually, I'm just sticking to the dating metaphor (that I'm planning to abuse linguistically).

How do you know who you want to go on a second or third date with? To commit to a long-term relationship? Similar here except without the sex. ACTUALLY, to stretch my metaphor to the breaking point, idea sex (TED talk link, very safe for work) (is totally a thing and here are more links).

Key traits should include: good communicator, is a decent human being that you can stand to be around A LOT, has skills complementary to your own, is smart, is a (I hate this phrase) "self-starter".

For the second question, search this page for my answer on 'opportunity cost'.

Mar 28, 2016

Thanks for posting this. I could see this AMA being up there with the MS M&A/KKR guy.

What's closest to "actual" PE - merchant banking or SSG? How possible is it to lateral into either of these groups from GS IBD (let's say from the 7th floor - AFG). Did you ever see this happen?

Apr 4, 2016
Teller:

Thanks for posting this. I could see this AMA being up there with the MS M&A/KKR guy.

Wow - thanks. And, for those of you like me who immediately wanted to go see that AMA by the "MS M&A/KKR guy" here you go: link. I had to know.. - "is that a good thing or a bad thing?"

Teller:

<

p>What's closest to "actual" PE - merchant banking or SSG?

I'd say SSG. Mostly because I worked there.

But realistically, take a look here or here. These are private equity funds. They do private equity.

What I would say. SSG has effectively a flexible capital base and a mandate to deliver attractive absolute and risk-adjusted returns. There is no PE fund LP to answer to - ultimately only to the shareholders of GS (and the regulators and other stakeholders in the banking ecosystem, if you want to be picky). As a consequence, there are fewer misaligned incentives (i.e. asymmetric carry-seeking in MBD vs. deal-profit seeking in SSG) and one less complication from agency bias.

In general, I like being around aligned incentives because they lead to the clearest thought and most conflict-free environments. That was my experience at SSG.

As an aside, here is the bible of Charlie Munger: pdf link. If you get around to reading it, on page 14 of the PDF is the relevant section on misaligned incentives causing cognitive drift:

Charles Munger:

"Did this surgeon [who removed gall bladders for a living and had removed A LOT of them] think 'Here's a way for me to exercise my talents'" -- this guy was very skilled technically -- "'and make a high living by doing a few maimings and murders every year in the course of routine fraud?'" And my friend answered: "Hell no, Charlie. He thought that the gall bladder was the source of all medical evil, and if you really loved your patients, you couldn't get that organ out rapidly enough."

Teller:

How possible is it to lateral into either of these groups from GS IBD (let's say from the 7th floor - AFG). Did you ever see this happen?

My two cents: be fantastic at your job, play politics (e.g., get lunch with the right folks to discuss to the point where you have a sponsor), and justifiably ask to transfer (there will not likely ever be an internal job posting, as you might imagine). Don't recall seeing this happen, but no reason for it not to (SSG once hired a lateral from another bank as an Associate).

Apr 9, 2018

What do you mean by asymmetric carry seeking in MBD??

Apr 9, 2018

Also why is SSG more like PE than MBD? I thought MBD was PE.?? Whats the difference?

Mar 28, 2016

Hey thanks for doing this - couple of questions;

1) What did 'managing' 300m of assets entail exactly?
2) What specific skillset did you develop/would be useful in a SSG context (i.e. modelling vs legal detail, etc)?

Apr 4, 2016
setarcos:

Hey thanks for doing this - couple of questions;

1) What did 'managing' 300m of assets entail exactly?

Thanks setarcos. 'Managing' is a great word to ask about. It can mean almost anything.

In my case, GS was either the sole participant or lead participant on each of the six investments that I 'managed'. Either way, the role of 'manager' was the same.

There was the normal stuff: (i) reviewing and consolidating financial reports; (ii) presenting performance updates to MDs quarterly; and, (iii) discussing performance with the CFO (usually) or CEO (for the smallest companies) to make sure I wasn't being silly or missing something.

And the slightly-less normal stuff: (i) understanding expectations for the next twelve months of Broadway shows (that was actually a thing); (ii) reviewing small distressed real estate properties for inclusion in a warehouse; and, (iii) renegotiating covenants on a credit agreement because the company missed expectations.

On a quarterly or monthly basis, we would receive financial reports from the operating companies. I would look them over vertically (i.e. is there anything weird about revenue or profit margins or taxes this month/quarter) and horizontally (i.e. are there any weird or good or bad trends going on across time periods). Although, I automated almost all of this review, so that was easy.

setarcos:

2) What specific skillset did you develop/would be useful in a SSG context (i.e. modelling vs legal detail, etc)?

The full package of underwriting skills require understanding: deal dynamics, capital structure, financial details (modeling), key operational metrics, legal and regulatory risk (incl. environmental for real estate and related), basic insurance coverage understanding (get a professional to look at it, but know what you're looking at), upside (investment thesis) and downside (key risks and mitigating factors).

Attention to detail. Because that's where the devil lives. I have this unshakable inkling that someone has literally gotten away with murder because they included a full and prompt disclosure in a footnote. If this has happened, please let me know immediately.

Negotiation. This doesn't mean you can yell and scream and get what you want. Negotiations take weeks. (Almost) always. The key skills here are (i) understanding the interests of each party; (ii) understanding where interests align and conflict; (iii) understanding that definitions frame the legal words that make the legal arguments (and so all the arguments are already "won" or "lost" by the time you're done defining terms); and, (iv) understanding the broader picture of incentives at play (e.g., does this PE associate opposite me just want to go home? or, do they just need 'anything that works' as quickly as possible? etc.).

And, mostly for the negotiation piece, but really at any time and always: frame analysis with opportunity costs and incentives in mind.

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Mar 28, 2016

Super interested to better understand Nextvest. A few questions:
1) Is it harder for you to find PE funds / deals or for you to find investors interested in them?
2) What kind of investor is using your service today?
3) How do you ensure quality so that you aren't another crowdfunding platform pumping out junk investments?

Apr 4, 2016
trizzlef:

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p>Super interested to better understand Nextvest. A few questions:1) Is it harder for you to find PE funds / deals or for you to find investors interested in them?

To-date, we've had surprising success finding high-quality deal flow.

Interested investors haven't been in short supply, but the capacity (sometimes our infrastructure, sometimes the nature of deal-level PE investing structures, sometimes a lack of investor ability to move quickly enough) to convert 'interest' to 'investment' has been mixed.

That's surprising because we haven't spent nearly as much focused effort on sourcing those relationships as we have sourcing investors. Partly, that derives from natural effects of our personal networks (i.e. banking and consulting backgrounds lead very frequently into PE).

trizzlef:

2) What kind of investor is using your service today?

We are continuing to actively grow our investor base of sophisticated members.

Generally, family offices and former/current financial professionals have been our favorite partners (if you know any, send them to me!). We also work with one of the European bulge bracket private banks.

In all cases, investors on our platform can 'read deals' independently. In fact, most of them are more experienced than us, from MDs at banks and Partners in mega-fund PE, we've been impressed with the sophistication of our earliest members.

trizzlef:

3) How do you ensure quality so that you aren't another crowdfunding platform pumping out junk investments?

Due diligence is the short answer.

The critical components there include: (i) underwriting our sponsor partners and (ii) a careful review of each transaction.

We seek to screen out subpar opportunities on face and take the most interesting transactions to discuss with our advisors (retired founder of large Asian PE fund, former SSG MD).

In general, our expectation is that transactions on our platform are 'worth the effort' for the investors. Since our model works well for executing good deals and doesn't comp us well for bad deals, we think the incentives are relatively close.

Mar 28, 2016

FANTASTIC AMA. Lot of interesting stuff here.

What's your firm's competitive advantage compared to rivals such as Artivest? This is a hot space, so I wonder what your value proposition is. Is it the access to a specific niche of PE deals, reputable advisors, etc.?

Thanks.

Apr 4, 2016
MBAGrad2015:

FANTASTIC AMA. Lot of interesting stuff here.

What's your firm's competitive advantage compared to rivals such as Artivest? This is a hot space, so I wonder what your value proposition is. Is it the access to a specific niche of PE deals, reputable advisors, etc.?

Thanks.

Thanks! And, great question!

Artivest offers a notably distinct product: investing in PE (and hedge) funds.

To my mind, Artivest provides a means for the KKRs of the world to simplify and streamline feeder funds from the retail channel into the preexisting fund-level fundraising process. Obviously, this extends beyond mega funds, but they fundamentally cater to the fund-structure investors.

We generally don't like the traditional PE fund structure for many investors. And, consequently, our model is centered on deal-level investing and discretion.

--end of basic response, beginning of tangent on fund-structure--

In my view, ONLY institutions with the capacity to create a statistically-normalized PE portfolio avoid the biggest problem: committed capital. Why is that a problem? Again, opportunity cost.

Think about a bank account with $100. It's yours (or a pension fund's, either way). Now, you commit to a PE fund for $100. The $100 is still yours, but suddenly, your $100 can't move into any risky assets, which means it can't earn returns much above Treasury yields (and if you're Buffett, they would earn exactly Treasury yields).

But why can't I invest that $100? Well, you may get a phone call from the GP asking for $30 tomorrow (realistically in 90 days, and there are swing line financing structures, etc., BUT the point still stands). Or maybe the next day, or maybe not.

And, WRIT OF GOD, all limited partners (that's you!) meet all capital calls (i.e. send the GP $30 tomorrow).

Failure is NOT an option (seriously - the terms for missing a capital call are extremely punitive (justifiably so) - e.g., forfeit all of your interests in the fund, provide the opportunity for someone to cover your shortfall and then they get your interests in the fund (or half of them, it doesn't qualitatively matter)).

So, back to our thought on opportunity cost. Where does this leave us? It takes ~4-7 years for a PE fund to deploy about 90-95% of its committed capital.

Assuming that's a smooth curve (usually there's a slow ramp-up period, but assume), let's call that 5 years with 19% deployed / year for easy math.

On average over those 5 years, 52.5% (mental math here - 47.5% from half of 95% given the linear deployment plus 5% that never gets out the door) of the dollar-weighted years were spent in Treasuries. That is bad for overall returns.

Depending on assumptions, the total return of PE can EASILY fall by double digits when you include opportunity costs owing to the fund structure. That is to say a 25% fund-level return as computed on the basis of cash flows could have a opportunity-cost total return to LPs of 15% or less.

BUT, if you look at all the PE performance data, it's based on actual cash flows in/out of funds. That's fascinating, but fails to account for the opportunity cost of undrawn committed capital!

In fairness to PE funds, many people and institutions need to be able to 'allocate' and don't have the infrastructure or capacity to assess deal-level opportunities. So, don't worry, PE funds will continue to exist. Although, management fees may come down somewhat.

All to illustrate that I haven't seen anyone who's quite doing what we are. Please let me know if I've missed them!

Mar 28, 2016

If a UG student had a choice between interning at a small, unknown pe fund vs a start up independent sponsor which would you advise?

Apr 4, 2016
dontbugme:

If a UG student had a choice between interning at a small, unknown pe fund vs a start up independent sponsor which would you advise?

Honestly, those could read anywhere from 'roughly equal' to 'obviously one'. It's your call.

Order of questions that I'd ask: Have you spoken with others who've worked there before? Where do you think you'll learn the most? Do either of the groups have people you DON'T want to work with? Do the partners at either group have exceptional backgrounds? Are they both paid? Does the independent sponsor have a clear strategy and connections for capital?

Hope that sheds some light.

Mar 28, 2016

wow thanks for the great info, really interesting stuff.

Out of curiosity what were the exits like out of SSG? Im assuming that most guys went to top PE, with the occasional HF, or IBD.

Apr 4, 2016
ddog1172:

wow thanks for the great info, really interesting stuff.

Out of curiosity what were the exits like out of SSG? Im assuming that most guys went to top PE, with the occasional HF, or IBD.

PE and business school heavy. I know from my brief foray into reviewing exit ops that there were a lot.

My four closest peers are now at (i) a PE firm; (ii) the PE arm of a family office; (iii) a very large HF; and, (iv) HBS. I know of others who went into mega fund PE, other smaller special sit funds, etc.

Mar 28, 2016

Does GS SSG recruit MBA students for associate level positions, or are the associates typically analyst promotes from SSG and IBD?

Apr 4, 2016
quant_finance:

Does GS SSG recruit MBA students for associate level positions, or are the associates typically analyst promotes from SSG and IBD?

Hard to say - I'm very unfamiliar with the MBA recruiting process (haven't been there..).

I know it will depend on which team in SSG is looking to hire. A few want lots of preexisting skills and do lateral hires. The general expectation is not 2-and-out and many associates/VPs/MDs have been with the group for some time.

Mar 29, 2016

Great, thanks for spending some time here, my question is I have a STEM background and just finished my MBA, I am changing careers to the financial area, so right now I have to take the series 7 and 66 which I am studying for, so my question here is what are the best five books that you have read that helped your career?

Thanks

Want to Lose the body fat, keep the muscles, I can help.

Apr 4, 2016
workrelated1:

Great, thanks for spending some time here, my question is I have a STEM background and just finished my MBA, I am changing careers to the financial area, so right now I have to take the series 7 and 66 which I am studying for, so my question here is what are the best five books that you have read that helped your career?

Thanks

Books! Fantastic. Which ones have helped my career? That's a specific flavor of book.

Here are three.
Poor Charlie's Almanack (although, you can just read this, which covers most of the interesting info: pdf link)
Berkshire Hathaway Letters to Shareholders
Intelligent investor by Ben Graham

With the time you have left, I'd suggest:
The Last Lecture
The Alchemist
1984

Mar 29, 2016

Wow, thank you, I was not expecting such a prompt reply. I will certainly look for these.

Thanks!

Want to Lose the body fat, keep the muscles, I can help.

Apr 4, 2016
workrelated1:

Wow, thank you, I was not expecting such a prompt reply. I will certainly look for these.

Thanks!

Nor was I!

FYI - the recent Berkshire letters are available here.

Mar 29, 2016

A million thank you's, Man you are so generous! I now have something extra to read, the link is great!

Want to Lose the body fat, keep the muscles, I can help.

Mar 29, 2016

Hey thanks for your AMA. I am also graduating UT this semester and was at GS last summer. If I am correct, you were in Irving? I also summered there in a different group. May I ask what was your compensation? Base + Bonus numbers for the years you worked there would be very helpful.

Apr 4, 2016
Communist:

Hey thanks for your AMA. I am also graduating UT this semester and was at GS last summer. If I am correct, you were in Irving? I also summered there in a different group. May I ask what was your compensation? Base + Bonus numbers for the years you worked there would be very helpful.

Yep, glorious Las Colinas.

Over 100 and under 200, going up over time. Comp always in line with IBD for base, bonus varied a bit but generally was approximately in line with IBD.

Mar 29, 2016

Wow that is bigger than expected.. I interned at a MO function within Finance and got a return offer of $50k + 7.5k. Goldman absolutely screws MO/BO functions when it comes to compensation. Also, how were your hours like? M-F? Weekend hours?
If I'm correct, SSG is within Securities while Direct Principal Investing is within MBD. I think the only FO functions at Irving is SSG, MBD and REFG.

Apr 4, 2016
Communist:

Wow that is bigger than expected.. I interned at a MO function within Finance and got a return offer of $50k + 7.5k. Goldman absolutely screws MO/BO functions when it comes to compensation. Also, how were your hours like? M-F? Weekend hours?If I'm correct, SSG is within Securities while Direct Principal Investing is within MBD. I think the only FO functions at Irving is SSG, MBD and REFG.

Re: hours, I was on call at all times. My worst weeks were easily around 100 hrs, but those weren't the norm. Most of the time I worked around 60-80 hrs / week with regular weekend work.

Mar 29, 2016

Fantastic AMA !
How does one become an independent advisor? i have a hard time imagining individuals raising debt and mezzanine tranches when i can't get my commercial banker to help me LBO an apartment and have the rent pay back the debt.
Is your platform limited to equity investment or can you be a debt investor too ?
How did you initially approach future investors to raise money and how did you decide on who to target ? could you expand on your definition of HNW ?

Thank you :)

Apr 4, 2016
dick_fluid:

Fantastic AMA !How does one become an independent advisor? i have a hard time imagining individuals raising debt and mezzanine tranches when i can't get my commercial banker to help me LBO an apartment and have the rent pay back the debt.Is your platform limited to equity investment or can you be a debt investor too ?How did you initially approach future investors to raise money and how did you decide on who to target ? could you expand on your definition of HNW ?

Thank you :)

Most of the classification of independent [sponsors] derives from a significant professional background in private equity investing. These folks tend to have nontrivial personal balance sheets (although relatively insignificant in the context of transactions) and substantial industry / investing expertise.

We're focused on equity-like returns, which is to say that we can look at debt, but it won't be a 6% loan. Usually in conjunction with an unusual corporate event (e.g., bankruptcy, spinout, etc.).

We email or call them to discuss our platform - the majority of our conversations are inbound interest and referrals.

HNW - typically ties to Accredited Investor threshold for private placements. That generally implies >$200k of income individually (as measured by your taxable AGI; or >$300k jointly for couples) or >$1mm net worth (excluding primary residence and associated debts).

Our platform adds a standard of sophistication to the HNW threshold. Since we're doing PE deals, our investors need to have a sense for what that means and the added risks.

Mar 29, 2016

Great AMA!

First question, how would you look at a student with a background that isn't strictly in finance? I'm a finance major with minors in history and poly sci. Would my minors more or less be disregarded or would they be brought up in an interview? I like to think I have a very wide range of interests (finance is first and foremost) and I was fortunate enough to come in with enough credits where I could pursue these additional areas of study.

Second question, what reading materials would you recommend to someone wanting to learn more about PE?

Third, what are some of the biggest challenges you've encountered, both in your time at GS and starting up your own firm and how did you respond to them? What mistakes did you make while responding to these challenges?

Thanks

Apr 4, 2016
Basketfoot:

Great AMA!

First question, how would you look at a student with a background that isn't strictly in finance? I'm a finance major with minors in history and poly sci. Would my minors more or less be disregarded or would they be brought up in an interview? I like to think I have a very wide range of interests (finance is first and foremost) and I was fortunate enough to come in with enough credits where I could pursue these additional areas of study.

That's still pretty finance-y in my book.

I double majored in Plan II (an interdisciplinary liberal arts program) and Business Honors. And until senior year, I had never taken a finance class.

To be fair, I've been a finance nerd since around 7th grade. But, I was upfront about this and asked them to test me on technicals like they would anyone else.

I'd say you don't even need to go that far - you're a finance major!

Basketfoot:

Second question, what reading materials would you recommend to someone wanting to learn more about PE?

Read the "risk factors" and "management discussion and analysis" sections from the 10-Ks from the public PE funds. KKR, Apollo, Blackstone, etc. They tell you how they think about their business, what they worry about, and how they make money. Here's KKR's latest.

Basketfoot:

Third, what are some of the biggest challenges you've encountered, both in your time at GS and starting up your own firm and how did you respond to them? What mistakes did you make while responding to these challenges?

Thanks

Hah, this feels like a job interview question.

At GS - staying 'always on' to make sure nothing got dropped was the hardest part of the job by far. There was one weekend when I didn't finish all of my analysis, which was noted in my performance review (as I knew it would). Nine months later, that deal closed. Don't know what the lesson is there.

Starting my own firm - biggest challenge is constant reprioritization across tasks. I constantly mis-prioritize tasks because this is a hard skill (for me, anyway). In fact, I might be doing that now.

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Mar 29, 2016

Could you please detail your strategy, plan and preparation leading up to the interview, the interview itself, and why IB and why SSG at GS. I realize that it is a lot to ask; but since you offered the AMA, it won't hurt to ask, right?

Apr 4, 2016
naivemonkey:

Could you please detail your strategy, plan and preparation leading up to the interview, the interview itself, and why IB and why SSG at GS. I realize that it is a lot to ask; but since you offered the AMA, it won't hurt to ask, right?

Here's the high level: I figured out I liked finance in 7th grade and read a lot from that point forward.

During recruiting season: I spent an outrageous amount of time (well over 40 hrs) refining my resume. I dropped to almost every job posting in finance (sorry UT students - I think the 12-interview limit is a little bit my fault). I knew what I wanted and had a general sense of what each firm offered. I approached interviews like a conversation, not like a one-way street. I brushed up on the most popular technical questions in the couple of weeks leading up to interviews (there really aren't that many and they really aren't that complicated).

Why IBD - because it's finance and investing and stuff. Why GS SSG - because it's actually investing and the incentives are better aligned, causing less agency bias and fewer cases of cognitive drift, which likely results in a better learning environment. And, I wanted to learn a lot.

Mar 29, 2016

Why wasn't my question answered? Not sure if intentional or if you just didn't see it. I'll post it again.

If I am correct, you were in Irving? I also summered there in a different group. May I ask what was your compensation? Base + Bonus numbers for the years you worked there would be very helpful.

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Apr 4, 2016
Communist:

Why wasn't my question answered? Not sure if intentional or if you just didn't see it. I'll post it again.

If I am correct, you were in Irving? I also summered there in a different group. May I ask what was your compensation? Base + Bonus numbers for the years you worked there would be very helpful.

Because I am slow and fallible and but one man at a keyboard.

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Best Response
Apr 4, 2016

I think I actually caught up to the questions.

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Mar 29, 2016

What type of PE/HF opportunities would you have if you had chosen to go to the route coming from GS SSG? What are your thoughts on search funds and would you consider operating one in the future?

Apr 4, 2016
KimchiNoodleSoup:

What type of PE/HF opportunities would you have if you had chosen to go to the route coming from GS SSG? What are your thoughts on search funds and would you consider operating one in the future?

Thanks Kimchi.

For HF exits, I wasn't focused on recruiting for this and had two interview request with top-20 firms, one well-known for quantitative strategies and one known for activism. In each (I assume) the role would have been similar to my background.

For PE, many of the mega funds now employ ex-SSG folks, and several middle market / special sits were founded by SSG alumni. Pretty wide range here.

Search funds (for those unfamiliar and looking to learn, Stanford has a primer here) are fascinating. A fairly effective network of investors for search funds does exist (caveat! - within certain communities - think GSB and HBS and Columbia alumni, etc.). That said, I can see how a search fund model can be interesting and attractive.

Ultimately, I think the barrier for me to do a search fund would be the question - "am I likely to find a business that I want to run for five years?" - maybe! But, I'm trying to do that already with Nextvest!

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Sep 13, 2016

thx

Apr 4, 2016
myr899:

Thanks for doing this. Do you know how GS PEG plays into their private equity mix, and specifically compares to the other PE type funds? I know it's a part of GSAM AIMS, but not too much else. Do people lateral from GS PEG to SSG or is it primarily just from IBD?

Complicated!

So, you're right with all these acronyms / initialisms. GS PEG (Private Equity Group) operates as a division of GSAM (Goldman Sachs Asset Management) AIMS (Alternative Investments and Manager Selection - don't see a great link for this).

Breaking that down now. GSAM runs about $1.1 trillion. From their site - "GSAM provides institutional and individual investors with investment and advisory solutions, with strategies spanning asset classes, industries and geographies."

What does that mean? They build funds for all sorts of things - PE, HF, equity, debt, money market, you name it! With that amount of AUM, they have something going on. Their clients are pensions, sovereign wealth funds (SWFs), endowments, foundations, high net worth individuals (HNWs or HNWIs), insurance companies, financial institutions, central banks, and other groups that have significant investable assets. Which, kinda helps.

But - what they're really selling is portfolio construction and the "market insights, risk management expertise and technology of Goldman Sachs." If you read about the "commitment to clients" on this page, you will learn even more.

To answer your question, I don't think PEG would be the first division recruited by SSG. The PEG institutional expertise centers on portfolio management, asset class distribution, risk management, and allocation vehicles. SSG (probably!) wants folks with direct transactional experience (i.e. corporate and securities underwriting and analysis with a side of negotiation knowledge and at least some legal understanding). YMMV.

Mar 30, 2016

powers99,

Thanks for doing the AMA. In regards to Nexvest how did you acquire your first investors.

What is your marketing strategy to acquire more?

Apr 4, 2016
TJS:

powers99,

Thanks for doing the AMA. In regards to Nexvest how did you acquire your first investors.

What is your marketing strategy to acquire more?

We talked to a lot of people. Then we went to conferences and talked to more people. We emailed some people. Got references. Asked for more connections. Became, in the terms of WSO, "Almost Human" as LinkedIn power users. Reduced to nearly zero the threshold to reach out to new folks. All the while, figuring out how things worked and trying to avoid actively stupid action.

Surprise! This post is marketing: go here.

Mar 31, 2016

Hey,

Just wanted to drop by to say congrats! I was a couple of years behind you at UT and USIT really triggered my interest in finance (I believe that's when I actually created this WSO account; haven't used it much, however). You and Forrest are awesome, inspirational folk. Keep up the good work!

Apr 4, 2016
HorizontallyOpposed:

Hey,

Just wanted to drop by to say congrats! I was a couple of years behind you at UT and USIT really triggered my interest in finance (I believe that's when I actually created this WSO account; haven't used it much, however). You and Forrest are awesome, inspirational folk. Keep up the good work!

Much appreciated and very humbling. Thanks.

Apr 1, 2016

Reiterating what the rest of the community is saying, thanks for doing the AMA. I'm currently a Junior at the University of Texas studying Economics. I have an internship this upcoming summer with Goldman Sachs in the OPS div. As grateful and excited as I am for the opportunity, I know in all reality, eventually I want find a position in the FO. On another note, thank you for shedding some light on the USIT org you founded. I was not familiar with this org and now I will be signing up for a membership and attending this Tuesday. Thanks again!

Apr 4, 2016
tylerdg1988:

Reiterating what the rest of the community is saying, thanks for doing the AMA. I'm currently a Junior at the University of Texas studying Economics. I have an internship this upcoming summer with Goldman Sachs in the OPS div. As grateful and excited as I am for the opportunity, I know in all reality, eventually I want find a position in the FO. On another note, thank you for shedding some light on the USIT org you founded. I was not familiar with this org and now I will be signing up for a membership and attending this Tuesday. Thanks again!

Great to hear. In Austin next week and may see you at the meeting. Might talk about something or another for five minutes. Come say hi!

Apr 1, 2016

So in a few years I plan to get out of the Military and go into my MBA, and as of right now I would love to go into the field of investment banking. If I had a choice, I would love to come in as an associate with Goldman. A year ago I had a phone interview with an Alumni from my non target who ended up doing his MBA at Columbia. He told me Goldman basically said he was a great candidate but wouldn't be getting a job because of his undergraduate background. Is this real, or is this something an ex non target can work out of? Would Military experience help get me over that hump?

Apr 4, 2016
rj1443:

So in a few years I plan to get out of the Military and go into my MBA, and as of right now I would love to go into the field of investment banking. If I had a choice, I would love to come in as an associate with Goldman. A year ago I had a phone interview with an Alumni from my non target who ended up doing his MBA at Columbia. He told me Goldman basically said he was a great candidate but wouldn't be getting a job because of his undergraduate background. Is this real, or is this something an ex non target can work out of? Would Military experience help get me over that hump?

Yes, maybe, yes.

That is, yes (this is real), maybe (an ex-non-target can demonstrate value beyond the 'reputation' of their undergrad - possible but not easy!), and yes (it helps, but isn't by any stretch surefire).

That being said, Goldman has a Veterans Integration Program (conveniently, VIP).

Get in touch with the folks running the VIP program early (i.e. now) and let them know you're interested - they will be able to give you a better sense of things than me!

Apr 1, 2016

Well I would think that the VIP program ( which most banks have some form of) is mostly for back/ mid office direct conversions after you get out. Most times you have to get an MBA to land an associate role ( especially since i'll be way too old for analyst by then) Will definitely reach out to them, but was told by alumni to not hold my breath and focus on the lower tier BB besides goldman.

Apr 4, 2016

Interesting to hear this - I certainly don't claim any experience with these programs. Best of luck with your search!

Apr 1, 2016

Thanks for sharing so many great resources.

As someone who is also a bit of a finance nerd since the 7th grade, I ask myself this all the time lately and would like to pose it to you. Where do you find fulfillment in your work?

Apr 4, 2016
Bubbles and Booms:

Thanks for sharing so many great resources.

As someone who is also a bit of a finance nerd since the 7th grade, I ask myself this all the time lately and would like to pose it to you. Where do you find fulfillment in your work?

Well, finance matters, a lot. As in, if you can't find money to build a company or do a project, you can't build that company or do that project.

My background and learning to date tend to guide me in the direction of investing-related things, of course.

Fundamentally, I like working with smart people and solving problems. In particular, I like places where my actions (for better or worse) are substantially differentiated from the 'replacement player'. If you're familiar with any of the advanced statistics in sports, like WAR for baseball players, that's an interesting framework.

But, let's talk fulfillment - right up there with how to be happy and the meaning of life. (I think) A lot of fulfillment is a conscious decision - to be or not to be fulfilled. Or, to borrow a not-quite-the-same-but-similar perspective from Henry Ford, "Whether you think you can, or you think you can't - you're right."

Further, it's quite a luxury to even consider fulfillment. That aspect of the human condition is comfortably near the end of the list for Maslow's Heirarchy of Needs. So, a lot is already going right for you to have 'fulfillment as a worry. Try to keep that in perspective.

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Apr 2, 2016

Fantastic thread, quite possibly one of the most informative threads I have read in a long LONG time. Thank you so much for doing this.

Apr 4, 2016

Ha - thanks!

Apr 3, 2016

One of the best threads I've ever read on here; a breath of fresh air.

How closely did you interact with other members of the SSG and have you found, since you began, a shifting in the delineation of the balance sheet away from certain groups (distressed debt) towards others (VC focused alt energy, tech, etc.) that are easier on the balance sheet from a risk-weighted asset perspective given the changing regulatory requirements?

Obviously there was an immediate shift to comply with regulations when they were enacted, but I'm referring more to the sense within GS that it's simply more prudent to focus on more traditional areas of VC/PE than areas like distressed debt even if they could pour more money into distressed situations if they wanted to. I know several senior distressed debt guys in the SSG have left in the past six months.

Glad to see another big fan of Matt Levine around as well.

Apr 4, 2016
MoOXF:

One of the best threads I've ever read on here; a breath of fresh air.

How closely did you interact with other members of the SSG and have you found, since you began, a shifting in the delineation of the balance sheet away from certain groups (distressed debt) towards others (VC focused alt energy, tech, etc.) that are easier on the balance sheet from a risk-weighted asset perspective given the changing regulatory requirements?

Obviously there was an immediate shift to comply with regulations when they were enacted, but I'm referring more to the sense within GS that it's simply more prudent to focus on more traditional areas of VC/PE than areas like distressed debt even if they could pour more money into distressed situations if they wanted to. I know several senior distressed debt guys in the SSG have left in the past six months.

Glad to see another big fan of Matt Levine around as well.

Thanks MoOXF.

Your question hinges on a relatively complicated point: recent bank regulatory shifts resulted in a significant focus on so-called "risk-weighted assets" (or, "RWAs"), which contrasts with the prior regulatory regime that focused more on leverage (not adjusted for risk).

As you note, when this regime shifted (along with a lot of other rules), banks read the rules, and generally adjusted as dictated by new RWA-based stress test requirements (trying oh-so-hard to pass, in some cases and not hard enough, in others).

The other thing that happened was that GS became a bank. Being a bank means more regulation and also a different set of capital sources available to you. Namely, deposits. That's why you see ALL of those Goldman Sachs-branded retail banking outlets on every street corner these days. Also, this lets you borrow at the Federal Reserve's discount window.

What are the effects of these two things? One, you have increased the amount of leverage available for lower-risk assets (because of RWA-based regulation - you have to reserve MUCH more capital against "risky" things than you do against "not-risky" things). Two, you now have access to lower-cost capital sources.

What is your job as a bank (in the general sense - not the regulatory sense)? To take in capital (from deposits, discount window borrowings, debt, and equity), determine which financial businesses are most worthy of allocations, allocate capital accordingly, and use profits to pay off your capital providers (in the order listed above).

So, if you're a bank and the leverage required/allowed changes for a bunch of financial businesses while your funding sources change simultaneously, you need to reevaluate what you're doing.

There are important distinctions (I think) in your commentary here - mostly around what opportunities you're discussing. PE/VC are NOT particularly favorably weighted from an RWA regulatory perspective. Nor is distressed debt. MOREOVER, short-term assets of (almost) ANY kind (including distressed debt) are not treated kindly by RWA rules.

If interested, check out slide 4 of this presentation for some of the key accounting distinctions that are relevant on the credit side.

As you might imagine, beyond the initial (and substantial) shift driven by regulatory changes, other issues drive a complex decision process for GS when deciding which businesses get more/less resources allocated. I couldn't say what causes/effects have driven the most recent departures you mention.

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Apr 3, 2016

Pretty awesome story man, wish you best of luck in the new venture. One question about your time at SSG - did you source any of the 11 deals you mentioned? I'll be entering a similar growth shop role in a year so it'd be great to hear how you were able to be so successful in it.

Thank you!

Apr 4, 2016
TechBanker44:

Pretty awesome story man, wish you best of luck in the new venture. One question about your time at SSG - did you source any of the 11 deals you mentioned? I'll be entering a similar growth shop role in a year so it'd be great to hear how you were able to be so successful in it.

Thank you!

Wasn't on the sourcing side at SSG, but from experience working on sourcing for Nextvest - lower to zero your threshold to reach out to folks you'd like to meet. Then follow up religiously.

Apr 4, 2016

Thanks a lot for doing this! Is equity research a good preparation for pe? How important is industry knowledge, from 0 to 10? Do you have different people cover different industries in your startup? Thank you in advance!

Apr 4, 2016
dreamworks:

Thanks a lot for doing this! Is equity research a good preparation for pe? How important is industry knowledge, from 0 to 10? Do you have different people cover different industries in your startup? Thank you in advance!

It depends! Like most things.

There are some PE-related things that you will (likely) learn in ER that apply, namely: company analysis (modeling, operations), industry dynamics, valuation, and storytelling (and polished communications, more broadly).

PE-related things that are less likely to be learned: negotiation, transaction structuring, deal process management, and deal sourcing/origination.

So, how much does industry knowledge matter 0 to 10? Depends on where in PE you're going, but it matters a lot. Generally, industry selection matters (<a href=http://www.brainyquote.com/quotes/quotes/w/warrenb..." target="_blank">ask Warren). And a deep understanding of industry verticals provides the investing foundation of many PE firms.

We partner with experienced investors, many of whom have deep industry experience but others are deeply experienced with particular transaction structures (e.g., distressed, etc.).

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Apr 4, 2016

Thanks a lot for your comment!

Apr 3, 2016

Another question if you have a moment: what books, beyond those mentioned above, did you find most directly applicable and/or instructive to your roll while at GS? Any good PE/VC, distressed debt, etc. books that you found captured the practical side of your day-to-day well?

Apr 3, 2016

Thanks very much for the detailed response and for sharing those slides. I sent you a PM as well if you ever have a moment to check it.

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