AMA - MM PE Vice President - Big 10 Undergrad - No MBA

Been on and around this forum for 5+ years and have changed user names (mostly because I lost passwords) multiple times. Figured it was time to give back in some way now that I have been around the industry for a while.

Background: Big 10 business degree, TMT analyst at ML, associate at small middle market sector focused fund, passed up business school to lateral to a well regarded larger middle market sector focused private equity fund. Recently was married to a girl who went through this entire process with me so social life questions are welcome as well...

Comments (83)

Sep 23, 2013

I have only 1 question for you - What Big 10 School? Big 10 Represent!

Sep 23, 2013

Its a real big ten school. Not one of the impostor Big 10 schools like Northwestern.

Sep 23, 2013
PunctuationMark:

Its a real big ten school. Not one of the impostor Big 10 schools like Northwestern.

LOL to whoever considers Northwestern a Big 10 school.

On another note, have you been TMT throughout? Banking, PE Gig #1, PE Gig #2?

Sep 23, 2013

Thanks for the thread and congrats on the nuptials.

Do you sit on any board seats? If so, how much involvement do you have?

Sep 23, 2013

Yes. I currently sit on two of our portfolio company boards -- both deals that I completed start to finish at the firm. My involvement varies. On one I speak with CEO/CFO daily given the roll-up strategy involved that usually involves figuring out how to continuously raise incremental debt to fund. On the other, my involvement is periodically checking in and attending 4 board meetings a year.

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Sep 23, 2013

Love the Big Ten rep (most family is at PSU) and want to know how the process was transferring from small MM to Large MM fund ? Was there similar strategy or what the benefit you had over MBA ?

Sep 23, 2013
hockey1316:

Love the Big Ten rep (most family is at PSU) and want to know how the process was transferring from small MM to Large MM fund ? Was there similar strategy or what the benefit you had over MBA ?

It was 50% luck and 50% intent. I wasn't shy about letting people within the target firm know I was interested in moving. That being said, if the opportunity would have presented itself 3 months later I would have been in business school and it would have not mattered. There are lots of reasons people go to get their MBA. The reason I had was strictly practical - I wanted a PE job in a firm that would be around for my career. I just viewed going right to this job as a short-cut, de-risked way to accomplish this goal.

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Sep 23, 2013

How did you prepare for buy-side interviews? What steps did you take to ensure that you would be thoroughly prepared for modeling tests and PE interviews (any specific books, guides, methods)?

Sep 23, 2013
Dartmouth:

How did you prepare for buy-side interviews? What steps did you take to ensure that you would be thoroughly prepared for modeling tests and PE interviews (any specific books, guides, methods)?

First and most importantly I knew my deals cold. Even parts of it that I wasn't overly involved with. I knew investment thesis, risks, why I like it don't like it, leverage levels, type of financing package, rates, etc.

Secondly, I rehearsed my "story". This is usually your first impression and the only question you know you will get in every interview. When someone says "walk me through your resume -- I wanted a concise and compelling story around who I am and why I am sitting in front of them.

Lastly, read technical guides to make sure I knew what they would throw at me. I am not sure nailing technical can get you a job -- but it sure and the hell will lose you a job if you don't know them cold. These were table stakes. If you don't know your technicals, you have no chance.

    • 1
Sep 23, 2013

where do you see your career going in the long run?

do you plan to move up in your current firm or other MMs? are you trying to break into a megafund? or do you see yourself as a VP/CFO/CEO of a portfolio company?

Money Never Sleeps? More like Money Never SUCKS amirite?!?!?!?

Best Response
Sep 23, 2013
sayandarula:

where do you see your career going in the long run?

do you plan to move up in your current firm or other MMs? are you trying to break into a megafund? or do you see yourself as a VP/CFO/CEO of a portfolio company?

At this point, I am content at the firm I am at doing exactly what I am doing. I expect to be partner by 35 and that isn't a bad life. Part of the reason I personally decided against business school is I started to wonder if there would ever be a time in my life I wasn't looking for the next best thing. I wanted to be happy and start my life instead of looking at every interim step as just a stepping stone to something better. I have a good job with a good firm. That is a good place to be. If my goals evolve (which they always do) I will change paths. But for now, I am here for the long term.

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Sep 23, 2013
PunctuationMark:
sayandarula:

where do you see your career going in the long run?

do you plan to move up in your current firm or other MMs? are you trying to break into a megafund? or do you see yourself as a VP/CFO/CEO of a portfolio company?

At this point, I am content at the firm I am at doing exactly what I am doing. I expect to be partner by 35 and that isn't a bad life.

Why do you expect 35? Is 35 the average age for a typical employee to become partner at your firm?
What do you think it takes for a VP to be eventually promoted to partner at your firm (or comparable MM firms in general)? Do you need to take initiatives to source some deals that generate good returns or would you need to get more involved in the fundraising process?

Sep 23, 2013

Congratulations, both on your career and marriage!

What made you want to go the middle market route?

Sep 23, 2013

Thank you very much for doing this. My questions mostly apply to IB.
1. As a 17 y.o., what are the best ways i can prepare for internships next year and get a head start compared to other kids my age?
2. In your opinion, what is the most valuable thing on a resume for a summer analyst at a BB/MM?
Cheers.

Sep 23, 2013

1) What do you think about the future of MM PE firms?
2) How tough is it to break into a decent MM PE firms these days as a Post MBA associate/vp from hbs/gsb?
3) As a MM PE VP, what are your main responsibilities?
4) How are the skills/personalities needed to succeed in PE different from IBD?

Sep 23, 2013
DoctorAndre:

1) What do you think about the future of MM PE firms?

2) How tough is it to break into a decent MM PE firms these days as a Post MBA associate/vp from hbs/gsb?

3) As a MM PE VP, what are your main responsibilities?

4) How are the skills/personalities needed to succeed in PE different from IBD?

1. I think I actually talked about this in a different post today, but I think there will surely be a rationalization in the number of firms out there. There are good GPs and bad GPs. In the past there was so much "dumb" money flowing into PE firms, that both thrived. I think the LPs are getting more discriminate on who they entrust with their capital and you will see the good firms thrive while the underperformers continue to get weeded out. In MM PE I think any firm has to have an angle. Whether that is type of deals (HIG = dirty deals) or sector (stone point - financial services). I am bias, but I struggle to see the value add of a generalist firm that just farms investment banking processes. The middle market is now a pretty efficient place. Tough to create alpha just reading CIMs and lobbing in bids.

2. That is a tough question. MM PE's are hiring. That said, each take what...1-2 post-MBAs each year? That means they can be very selective and good grades, good IB job and sometimes even previous PE experience aren't enough. Network is important. Demonstratable value add is also important. Everyone can build a three statement model. What can you do to help above and beyond? Proving why we should share our economics with you (assuming you are now on a partner track) is vital. Its just a higher bar.

3. MM VP is in my opinion one of the hardest position because there is no one job I can point to and say that is my responsibility. The deal going smoothly and making the partner's/principals life easier is my job. Broadly - the diligence process is my job. I direct associates and senior associates on the analyses to complete. The model is my ultimate responsibility. If the numbers are wrong - its on me. Financing is where I spend a ton of my time. Working with lenders to best capitalize a prospective deal. I also am usually responsible for all third party diligence providers (QofE, consultants, legal, etc)

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Sep 23, 2013

how does coming from a non-target background hurt PE recruiting opportunities, given that you earned your spot at a BB?

Sep 23, 2013
asianracist:

how does coming from a non-target background hurt PE recruiting opportunities, given that you earned your spot at a BB?

I think it was hardest to get into IB from a non-target. Once you get into a bank, I always felt I was on a level playing field. To be honest, I feel like being the "that kid from a big 10 school" has helped people remember me a lot more than "one of the 50 HSW kids". You'll have to work harder on the front end though, that's for sure. The good thing about being from a school like mine is the Alumni in the industry are extremely interested in helping students looking to get into the industry. Seek that out.

Sep 23, 2013
PunctuationMark:

Recently was married to a girl who went through this entire process with me so social life questions are welcome as well...

Can you explain what you mean by this? Do you mean you literally married a (current or former) co-worker? or do you mean that your wife also has a banking & investing background? Either way, congrats on the wedding!

Also, are you still based in Big 10 territory? or are you based out of NY/SF/Boston where the preponderance of TMT-focused funds are found?

"Millionaires don't use astrology, billionaires do"

Sep 23, 2013

LOL... Patrick or Andy with another great picture to compliment the post

Sep 23, 2013
peinvestor2012:

LOL... Patrick or Andy with another great picture to compliment the post

That is my self imposed post picture. I can't help but feel extremely Douchebagy when answering questions about myself that I myself solicited. It somehow made me feel better by hiding behind that picture...

Sep 23, 2013

Thanks for doing the AMA. I'm currently looking to go the same route as you and am staying on for a 3rd year at my MM PE shop as an associate. My questions:

1. How long were you an associate and was it a 2-3 year and out or was there the possibility for direct promote at the firm?

2. What role did your recommendations from your first PE job play in landing the direct promote? Was it done through a recruiter or intro via one of your bosses? Just trying to figure out the weighting of importance in (i) your experience / interview skills, (ii) recs from bosses, and (iii) recruiters, other, etc.

3. Anything you did to differentiate yourself from other associates to stand out?

Thanks so much!

BossMode

Sep 23, 2013

Maybe I'm the outlier here, but I'm more curious about how your former gf/future wife handled your working hours. Is she younger than you? Older? How did the time commitment affect the relationship? Was it long distance at any point?

I know the consensus among the people here is "lol hookup with chicks forget relationships" but I feel like there are a few of us in the minority in happy/stable relationships with wonderful people, and it's hard to get good insight on these sorts of things.

Were there any strains on the relationship, things that made it difficult, etc?

Thanks

"You rarely have time for everything you want in this life, so you need to make choices. And hopefully your choices can come from a deep sense of who you are." - Mister Rogers

Sep 23, 2013
kinginthenorth:

Maybe I'm the outlier here, but I'm more curious about how your former gf/future wife handled your working hours. Is she younger than you? Older? How did the time commitment affect the relationship? Was it long distance at any point?

I know the consensus among the people here is "lol hookup with chicks forget relationships" but I feel like there are a few of us in the minority in happy/stable relationships with wonderful people, and it's hard to get good insight on these sorts of things.

Were there any strains on the relationship, things that made it difficult, etc?

Thanks

This is the question I had in mind when I put the information about my wife being there throughout this entire period. I met her my senior year in college. She saw me not sleep for nights at a time through banking, constantly check my blackberry out of fear and become OCD that the picture frames lined up on the mantle -- all as a result of my job. She is a not in finance. Sometimes my job and my priorities just didn't make sense to her. I think it takes a special person to be patient while she took a back seat to my job. Its tough. Listen, I could have just banged random chicks and maybe at the time it would have been less stressful than worrying about making time to see her and making sure she is happy. But at the end of the day, it was always nice to go home to someone you know is on your side no matter what. The toughest conversation I ever had was after my two years in banking - telling her I want to move across the country and I wanted to have her come with me. It could have gone either way. I am thankful she decided to come with me.

    • 1
Sep 24, 2013
PunctuationMark:
kinginthenorth:

Maybe I'm the outlier here, but I'm more curious about how your former gf/future wife handled your working hours. Is she younger than you? Older? How did the time commitment affect the relationship? Was it long distance at any point?

I know the consensus among the people here is "lol hookup with chicks forget relationships" but I feel like there are a few of us in the minority in happy/stable relationships with wonderful people, and it's hard to get good insight on these sorts of things.

Were there any strains on the relationship, things that made it difficult, etc?

Thanks

This is the question I had in mind when I put the information about my wife being there throughout this entire period. I met her my senior year in college. She saw me not sleep for nights at a time through banking, constantly check my blackberry out of fear and become OCD that the picture frames lined up on the mantle -- all as a result of my job. She is a not in finance. Sometimes my job and my priorities just didn't make sense to her. I think it takes a special person to be patient while she took a back seat to my job. Its tough. Listen, I could have just banged random chicks and maybe at the time it would have been less stressful than worrying about making time to see her and making sure she is happy. But at the end of the day, it was always nice to go home to someone you know is on your side no matter what. The toughest conversation I ever had was after my two years in banking - telling her I want to move across the country and I wanted to have her come with me. It could have gone either way. I am thankful she decided to come with me.

Do you still get to party after you are married?

Sep 23, 2013

First off Congratulations on getting married!!!

1. I know this is very direct, but what is your overall comp like? How does this differ from maybe some of your peers working at a bigger fund in terms of both money and lifestyle?
2. What qualities did your heads see in you to give you that direct jump into PE? Were you very invested in the deal process, produce ideas, source deals?
3. What are your day to day responsibilities like?

P.S- WSO is by far the best site for an aspiring, or even a current finance professional. The ability to read, and ask questions with people who have clearly made it into a very tough industry with very little time (All for free btw) is in-fucking-valuable...

I think- therefore I fuck

Sep 23, 2013
worklikeamachine:

First off Congratulations on getting married!!!

1. I know this is very direct, but what is your overall comp like? How does this differ from maybe some of your peers working at a bigger fund in terms of both money and lifestyle?

2. What qualities did your heads see in you to give you that direct jump into PE? Were you very invested in the deal process, produce ideas, source deals?

3. What are your day to day responsibilities like?

P.S- WSO is by far the best site for an aspiring, or even a current finance professional. The ability to read, and ask questions with people who have clearly made it into a very tough industry with very little time (All for free btw) is in-fucking-valuable...

This is the beauty of anonymous internet sites. I don't mind answering questions like this.

1. My all in cash comp is $450K. Carry is in the mid-7 figures. note: when someone quotes the value of their carry - or at least when I do - it assumes a 2.0x on the fund. ex: If the fund(s) I have carry in ultimate return 2.0x -- I get the value I referenced above. I really have no idea where that compares to peers at mega funds. VPs surely make more at the mega funds. I'd imagine Mega fund VPs make $550-650 with similar carry numbers. Anyone have an actual datapoint?

2. I'd like to think they saw something in me, but its tough to say what exactly that is. I will say the guys I've seen that don't make it just could never make the jump from doing the analysis to interpreting the analysis. Developing judgment is critical and a soft skill that is tough to teach.

Sep 23, 2013
PunctuationMark:
worklikeamachine:

First off Congratulations on getting married!!!

1. I know this is very direct, but what is your overall comp like? How does this differ from maybe some of your peers working at a bigger fund in terms of both money and lifestyle?

2. What qualities did your heads see in you to give you that direct jump into PE? Were you very invested in the deal process, produce ideas, source deals?

3. What are your day to day responsibilities like?

P.S- WSO is by far the best site for an aspiring, or even a current finance professional. The ability to read, and ask questions with people who have clearly made it into a very tough industry with very little time (All for free btw) is in-fucking-valuable...

This is the beauty of anonymous internet sites. I don't mind answering questions like this.

1. My all in cash comp is $450K. Carry is in the mid-7 figures. note: when someone quotes the value of their carry - or at least when I do - it assumes a 2.0x on the fund. ex: If the fund(s) I have carry in ultimate return 2.0x -- I get the value I referenced above. I really have no idea where that compares to peers at mega funds. VPs surely make more at the mega funds. I'd imagine Mega fund VPs make $550-650 with similar carry numbers. Anyone have an actual datapoint?

2. I'd like to think they saw something in me, but its tough to say what exactly that is. I will say the guys I've seen that don't make it just could never make the jump from doing the analysis to interpreting the analysis. Developing judgment is critical and a soft skill that is tough to teach.

If you don't mind me asking, how big is your fund (I guess latest and total AUM)? This thread is extremely helpful by the way

Sep 23, 2013
PunctuationMark:
worklikeamachine:

First off Congratulations on getting married!!!

1. I know this is very direct, but what is your overall comp like? How does this differ from maybe some of your peers working at a bigger fund in terms of both money and lifestyle?

2. What qualities did your heads see in you to give you that direct jump into PE? Were you very invested in the deal process, produce ideas, source deals?

3. What are your day to day responsibilities like?

P.S- WSO is by far the best site for an aspiring, or even a current finance professional. The ability to read, and ask questions with people who have clearly made it into a very tough industry with very little time (All for free btw) is in-fucking-valuable...

This is the beauty of anonymous internet sites. I don't mind answering questions like this.

1. My all in cash comp is $450K. Carry is in the mid-7 figures. note: when someone quotes the value of their carry - or at least when I do - it assumes a 2.0x on the fund. ex: If the fund(s) I have carry in ultimate return 2.0x -- I get the value I referenced above. I really have no idea where that compares to peers at mega funds. VPs surely make more at the mega funds. I'd imagine Mega fund VPs make $550-650 with similar carry numbers. Anyone have an actual datapoint?

2. I'd like to think they saw something in me, but its tough to say what exactly that is. I will say the guys I've seen that don't make it just could never make the jump from doing the analysis to interpreting the analysis. Developing judgment is critical and a soft skill that is tough to teach.

Can you explain how carried interest works at the VP level? When is the carried interest usually paid out, and do you still get the interest if you decide to leave the firm?

Sep 23, 2013

props for putting your compensation out there like this -_-

alpha currency trader wanna-be

Sep 23, 2013

Thanks for doing the AMA. It is very useful to hear candid comments. I have a couple of questions. Where did you do your IB job? And where is your PE job? Also would like to hear how many people are at your firm now?

Sep 23, 2013
SWM looking for PE:

Thanks for doing the AMA. It is very useful to hear candid comments. I have a couple of questions. Where did you do your IB job? And where is your PE job? Also would like to hear how many people are at your firm now?

No problem. I did my Investment Banking in New York and both PE Jobs were on the west coast. One in LA and one in SF -- in no particular order. We have something like 30 investment professionals.

    • 1
Sep 23, 2013

Thanks again for the great answers, you would not believe how beneficial it's been for me because I'm hoping to follow a similar career trajectory, and I've got an eerily similar background (B1G represent, although I can't be too proud of my team given the last few weeks of football).

A question I've always wondered, and it's a bit tangential - you mentioned you did your IB stint at ML, so I imagine this is pre BofA-ML merger. Did the legacy Merrill groups do M&A within the specific industry verticals, or were they all outsourced to the M&A group like how BAML does it now?

Also, was Merrill a top TMT bank back in the day? I don't know too much about them, nor do I know how BAML TMT is nowadays, but I'm just trying to figure out how placement was for your group.

Also (and I don't mean to ask too many personal details), was location a deciding factor at all when you were looking to move across the country? Or was it more the firm that you ended up getting an offer from, and it just so happened to be in SF/LA?

And I guess the last question is, what would you recommend people do from day 1 (aside from knowing all of your deals through and through) of their BB stint if their ultimate goal is 2 yrs -> PE? Anything that people might not realize?

Thanks again, really appreciate it.

"You rarely have time for everything you want in this life, so you need to make choices. And hopefully your choices can come from a deep sense of who you are." - Mister Rogers

Sep 23, 2013

Thank you for this post.

Do you think not having a top MBA name under your belt will hurt you in the long-run? And how so? Also, do you think that people constantly judge you / see you differently for working in high finance coming out of a non-traditional, non-target school (i.e. Not HYPSM)

Sep 23, 2013
TheBlueCheese:

Thank you for this post.

Do you think not having a top MBA name under your belt will hurt you in the long-run? And how so? Also, do you think that people constantly judge you / see you differently for working in high finance coming out of a non-traditional, non-target school (i.e. Not HYPSM)

Good question. I hope not. In my opinion, the biggest bias from not having a pedigree is early on in your career when you don't really have anything else to go on. As you become more established in your career, track record and performance should be your pedigree. Anyone who looks down on me because where I went to school needs to really think about what they are saying. I ended up in the same spot as them with an "inferior" education. What does that say about them?

Sep 24, 2013

Great shit. I love the comment about ending up in the same position as others but with an "inferior" education.

My question: What qualities/characteristics/personality traits really stand out (positive or negatuve) when interviewing candidates?

Sep 24, 2013

hi, so my situation is a bit different.
I've been in PE (top tier firm) for 5 years. BUT it was all overseas.
My US network is zero (trying to connect in thru my b-school network but it is difficult).
I'm not able to get much credit in US for working in PE overseas despite the firm's great reputation and as I have no network here in USA I'm not really able to so far to get any interviews.
Any advice as to how to land the interviews in US, and how to bridge the gap over not having worked in USA?
Apologies to all for the specific nature of my question which will not apply prob to many others here, but I did feel compelled to ask as I am quite stuck.

Sep 24, 2013

How many different projects are you on at a single time? I've found in banking that I'm often spread very thin and feel like I have very little time to critically think about an individual project

Sep 24, 2013
ayoayo:

How many different projects are you on at a single time? I've found in banking that I'm often spread very thin and feel like I have very little time to critically think about an individual project

I'd say I am usually looking at 3-4 new deals at a time -- all at differing phases of the deal. Our associates are usually on fewer new deals at a time -- maybe 2 on average? That is all on top of existing portfolio company work.

Sep 24, 2013

Could you tell us a bit about your working hours and lifestyle at the PE firms you've been a part of? How was it as an associate, and now VP? Avg hours per week? Weekends? Perks/benefits? Fairly predictable or unpredictable work days/schedules? What does your day in a life mostly consist of (can you maybe walk us through this? And lastly (sorry this is long), how often do you travel? Do you enjoy it?

Sep 24, 2013
TheBlueCheese:

Could you tell us a bit about your working hours and lifestyle at the PE firms you've been a part of? How was it as an associate, and now VP? Avg hours per week? Weekends? Perks/benefits? Fairly predictable or unpredictable work days/schedules? What does your day in a life mostly consist of (can you maybe walk us through this? And lastly (sorry this is long), how often do you travel? Do you enjoy it?

Lifestyle:
As an associate, hours were terrible (~75hrs with at least one weekend day). Banking like but in my opinion with higher stress because there was just less hand holding and things were expected to be right. As a senior associate, it started to get better as you just didn't have to do the lowest level work typically. I think my hours were still in the 75 range, just more control over my schedule and when I worked on weekends. As a VP things got DRASTICALLY better. My normal day is arrive around 9:30am, leave around 7pm. Probably all in 55 hrs a week. I don't go into the office most weekends - but there are very few weekends I am not working in some capacity (emails, a call here or there, etc). As a VP, I control my day and schedule alot more. You'll always have someone's schedule who trumps yours, but I definitely influence what happens when.

Perks:
Flying business/first only, gym membership, free healthcare, co-investment opportunity on individual deals, and others that would be too specific to name

Travel:
I personally travel a fair amount. ~3x per month on average. I enjoy it. I am also lucky that I typically go to good places as a result of the industries I cover. Others in my firm are heading to Cleveland or Detroit. Travel is probably alot less fun for them.

    • 1
Sep 24, 2013

What do you do in a downcycle? Fundraising dries up --> no money --> no deals to do? Spend your time working with portfolio companies instead?

Sep 24, 2013
prospie:

What do you do in a downcycle? Fundraising dries up --> no money --> no deals to do? Spend your time working with portfolio companies instead?

Thankfully, I haven't experienced this yet. Fundraising hasn't been a problem for my fund and the past few years we have been very active. That said, I'd say valuations are so out of control that we are somewhat sitting on the sidelines until they start to rationalize. During this new deal lull, I spend alot of my time working with newly acquired businesses to get them going in the right direction, refinancing balance sheets of portfolio companies or working on add-ons within portfolio.

Sep 24, 2013

Great thread. Thanks!

Sep 24, 2013

Out of curiosity if you are at $5m carry at vp level, how much carry do partners (excl. founders, i.e. owners) have?

Sep 24, 2013
leveredarb:

Out of curiosity if you are at $5m carry at vp level, how much carry do partners (excl. founders, i.e. owners) have?

Not really sure, but it is alot. In a $2.5mm buyout fund, assuming 20% carry, there is an estimated $500 million in carry value for everyone (again, assumes a 2.0x fund return). This is in a single fund, not across multiple funds. We have something like 30 investment professionals. Call it half of which are VPs are below. So 15 Partner/Principal level guys are sharing alot of money.

Sep 24, 2013
PunctuationMark:
leveredarb:

Out of curiosity if you are at $5m carry at vp level, how much carry do partners (excl. founders, i.e. owners) have?

Not really sure, but it is alot. In a $2.5mm buyout fund, assuming 20% carry, there is an estimated $500 million in carry value for everyone (again, assumes a 2.0x fund return). This is in a single fund, not across multiple funds. We have something like 30 investment professionals. Call it half of which are VPs are below. So 15 Partner/Principal level guys are sharing alot of money.

* a lot

    • 4
Sep 24, 2013

Is this assuming zero hurdle rate (I.e. 20pc on all return)? Just surprised by the $5mm at vp level, given partner implied average is only $30m (and presumably founders take a big chunk of this so non founders could be closer to$10-15m).

Sep 24, 2013
leveredarb:

Is this assuming zero hurdle rate (I.e. 20pc on all return)? Just surprised by the $5mm at vp level, given partner implied average is only $30m (and presumably founders take a big chunk of this so non founders could be closer to$10-15m).

You have to delineate between total carry and carry on any one fund. Total carry $5mm (on the last buyout fund we raised, my carry for that fund was in 3-3.5 range. You get carry in each fund your firm raises. You are assuming we only have 1 fund. Also, there is a GP catch-up to a hurdle rate. So not sure why that matters in your calculation. If you create 2,500 bn in value for investors, the GP gets 20%/30% whatever their fund docs say. Hurdle would only come into play if your fund IRR was sub whatever the hurdle is (6-8%)

    • 1
Sep 25, 2013
PunctuationMark:
leveredarb:

Is this assuming zero hurdle rate (I.e. 20pc on all return)? Just surprised by the $5mm at vp level, given partner implied average is only $30m (and presumably founders take a big chunk of this so non founders could be closer to$10-15m).

You have to delineate between total carry and carry on any one fund. Total carry $5mm (on the last buyout fund we raised, my carry for that fund was in 3-3.5 range. You get carry in each fund your firm raises. You are assuming we only have 1 fund. Also, there is a GP catch-up to a hurdle rate. So not sure why that matters in your calculation. If you create 2,500 bn in value for investors, the GP gets 20%/30% whatever their fund docs say. Hurdle would only come into play if your fund IRR was sub whatever the hurdle is (6-8%)

So am I thinking about this right... $450k all-in now... going to what, conservatively $1m all-in 5 years from now? So you're averaging $750k/year cash all-in, plus $3m carry across 5 years, so ~$600k carry, you're at $1.35m cash+carry/yr?

Also, you did you mean the carry isn't paid out until the fund is fully harvested or the investment is fully harvested?

Sep 24, 2013

got it, thanks, that's very helpful.

Sep 24, 2013

Awesome thread. Congrats on your success!

Why exactly did you decide to not apply to b-school? Weren't you a bit curious to see if you could've gotten into hbs/stanford/wharton and leverage that to getting into a megafund shop or hedge fund?

Sep 24, 2013
mbavsmfin:

Awesome thread. Congrats on your success!

Why exactly did you decide to not apply to b-school? Weren't you a bit curious to see if you could've gotten into hbs/stanford/wharton and leverage that to getting into a megafund shop or hedge fund?

Let me clarify. I applied after 2 years of PE and didn't get into Harvard or Stanford -- so if I would have gotten in then, this story would be different. I then applied the next year and got into Harvard, Wharton and Chicago (dinged again at Stanford). At that point is when I made the choice not to go. I had no desire to go to a mega fund. I had no desire to go to a hedge fund. I'll always wonder if I would have come up with some brilliant idea and started a business and become a billionaire by now during business school, but I highly doubt it. I am in less debt and frequently take calls from my friends who did go back to business school looking for jobs. Avoiding business school isn't for everyone. It just was for me.

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Sep 24, 2013

Just wanted to restate a question I asked earlier but you didn't answer - How do the skills needed to succeed in PE differ from IBD? At VP+ level in PE, is it just like banking at senior levels where you just have to be good at being a salesman and maintaining relationships, or do you have to be a good investor and be "intelligent"?

Similarly, do senior bankers and PE Partners almost always have similar personalities? (extreme extrovert, aggressive, and etc)

Thanks for the thread! B10 represent.

Sep 24, 2013

Awesome thread man! I really appreciate how candid you are.

I'm strongly considering going to a top 15 bschool after a few year in corp fin to try to transition to high finance. Do you know of people, or is it possible, for people to break into PE after a top 15 MBA with corp fin experience?

I'm also a B10 alum. Unite! I'm sure you can guess which one.

Also, how long did it take you to make VP out of undergrad?

Sep 24, 2013

How have your two funds gone about the Associate recruiting process? Wondering specifically about the use of recruiters and what type of timeline you typically operate on.

Thanks for the thread.

Sep 25, 2013

I'm curious how no one has asked, but you mentioned how your now-wife was with you through the entire process. How did you guys handle the hours? It's a pretty strong team effort, but there has to be some difficulties that still come.

Would love to pm more about this if you don't want to put it all out in the open.

Sep 25, 2013

To the above poster- he's already addressed this in page 1.

OP, obviously you make good money... what do you plan to do with all that? Also, you said you plan to stay until you make partner and so on... how difficult of a feat is this across the PE industry? Do most PE partners stay on as partners until retirement, or have you seen them venture out to other roles (CEO, different PE firms, industry, etc.)?

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Sep 25, 2013

Correct. Your carry percentage is your ownership in a particular fund (it can vary from fund to fund). From what I've seen this is by far the most common structure. I've also heard about firms that force you to invest actual dollars in the investments you make (above and beyond your general GP commitment). That ties your compensation a bit more to your individual deals.

Sep 25, 2013

Now that we are on it, how exactly are hurdle rates structured? Is it just if fund is below 6-8pc (or wherever hurdle rate is) then carry is zero, if above its 20pc (or whatever fee is set at) on entire return?

Are funds ever structured as 20pc is only charged on total return - hurdle rate amount?

The former seems like a pretty shitty deal for LPs lol

Sep 25, 2013

Carry is 0% until the hurdle is hit. Once you hit the hurdle there is a "catch-up" where 100% of the incremental returns go to the GP. Afterwards it is 80/20 (assuming carry is 20%).

Examples assuming an 8% hurdle rate and an 80/20% carry split:
Fund returns 6%: LPs get all 6%.
Fund returns 8%: LPs get all 8%.
Fund returns 9%: LPs get 8%, GP gets 1%.
Fund returns 10%: LPs get 8%, GP gets 2%.
Fund returns 20%: LPs get 16%, GP gets 4%.

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Sep 25, 2013
CompBanker:

Carry is 0% until the hurdle is hit. Once you hit the hurdle there is a "catch-up" where 100% of the incremental returns go to the GP. Afterwards it is 80/20 (assuming carry is 20%).

Examples assuming an 8% hurdle rate and an 80/20% carry split:

Fund returns 6%: LPs get all 6%.

Fund returns 8%: LPs get all 8%.

Fund returns 9%: LPs get 8%, GP gets 1%.

Fund returns 10%: LPs get 8%, GP gets 2%.

Fund returns 20%: LPs get 16%, GP gets 4%.

Very helpful, thanks Comp. +1

"Millionaires don't use astrology, billionaires do"

Sep 25, 2013

Comp, I was under the impression that the catch-up actually meant that once hurdle was hit it was virtually like there was no hurdle at all, i.e. if your fund's hurdle is 8% and you get a 10% return, everything after the invested capital, meaning the whole 10% return, would be shared 80/20.
I understand that getting 20% of the excess return on the hurdle, in this case 2%, is the "non catch-up" version, isn't it?

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Sep 25, 2013
ricardo.abrosa:

Comp, I was under the impression that the catch-up actually meant that once hurdle was hit it was virtually like there was no hurdle at all, i.e. if your fund's hurdle is 8% and you get a 10% return, everything after the invested capital, meaning the whole 10% return, would be shared 80/20.

I understand that getting 20% of the excess return on the hurdle, in this case 2%, is the "non catch-up" version, isn't it?

Nah. From the actual fund formation documents that I've read it goes:

1) First 8% to L.P.s
2) Next 2% to GPs (catch-up)
3) 80/20 there on out.

I've never heard of the concept that clearing the hurdle eliminates the impact of the hurdle altogether. Maybe others have structured it that way?

Sep 25, 2013

Cool thx good to know it's not just us on the HF side screwing clients with unjustified fees :)

Sep 25, 2013

So as a VP you got 100bps of carry? Nice.

Sep 26, 2013

Do you plan to have kids?

Sep 26, 2013

Have you ever felt at a disadvantage, or in the position where you felt you needed to prove yourself before being taken as seriously as your target-school peers, due to your Big 10 background - for instance when networking, talking to LP's/management teams, presenting investment ideas.

Sep 27, 2013
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