Any career regrets after moving from PE to public markets?

Associate 1 in PE - LBOs

For those of you who moved from PE to public markets investing, what are they key "regrets" you had, if any?

I'm currently at a PE fund though I don't think I see a long/sustaining career in PE because I think I'm very average in terms of people skills - I don't suck, but I'm not great either. I like the work of investing, so would love to have a career in it...I was just thinking it may be more sustainable for me to move to public investing.

Key things I worry about in switching to public equities is the seeming lack of career stability - I see a lot of linkedin profiles of very qualified people who seem to change funds every 2-3 years, and generally it doesn't seem like there are progressions in responsibility (continue to be analyst, etc.)

I've browsed through a few threads on this forum that talks about the differences in the 2 career paths (public - no interaction with management/not as involved, mark to market, need to jive with PM, etc.). Would just be curious on how other people in similar situations (like investing, but not outstanding in people skill) thought about this.

Thanks

Comments (28)

May 22, 2020

also curious about making a similar move. currently in the private market space, however at more senior levels it does seem more focused on relationship building and managing processes as opposed to raw intellect and investing.
which has me considering public equities, however also share similar concern given industry headwinds - also given limited PM spots I wonder how analysts progress and, if they don't, where do they go particularly if they are from a less well known shop and limited skillset? biggest fear would be position and salary stagnation despite working for 10+ years as compared to clearer progression in deal based roles

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May 22, 2020

A few things I would consider:

1) PE is definitely more stable than public markets (aside from the large long onlys). However, it is not a given that you will make it to the top. As you guys both know, it is not dissimilar to IB in that strong analysts/associates are not necessarily strong MDs/Partners. If you objectively assess your strengths and know that soft skills are not one of them, even though the career and asset class are more stable than public markets, you can't assume that you will be able to participate in the upside because you aren't going to make it there. If you don't have strong enough soft skills, realistically speaking you can probably grind it out through the VP level, so maybe you can be in a mid-level position through your mid 30s (maybe you change shops, etc). During that period, let's say you are making mid 6 figures cash. After that point, assuming you don't find a way up at your shop, you have a few options - 1) go down market and hope you get lucky somewhere but that really just kicks the can down the road - i.e. at some point you will need to bring in / close good deals and if you can't do it, you can't do it and this will eventually become apparent or 2) do something tangentially related, like do corp dev or strategy in-house somewhere. In either of the two scenarios, realistically your comp range is going to be flat to slightly down.

2) Public side roles are great for the right person. You really have to be interested in it and have the right risk appetite. With many people in public investing roles, even though they recognize the secular headwinds, a big part of the reason they stay put is because they simply don't want to / can't imagine themselves doing anything else because they really enjoy it. There are certainly some folks that stay because the skill set isn't that transferable to much else, but I would say the former sentiment is pretty common. Said differently, some people simply want to do it because that's what they are passionate about not because they're assessing career attractiveness vs private markets - they are inherently two different job even though at the core they are investing.

3) Yes you have to be good, etc but a big determinant of your career trajectory and monetary success is the quality of the seat you're in. This is true for PE as well but IMO there are more attractive seats in PE than on the public side. Being in a good seat will offset some of the career risks that you're concerned about because the risk reward can be very attractive, especially if it's a job you really enjoy. If you're in a good seat and have good performance over a couple years, I would posit that your aggregate earnings potential will be greater than if you were in the scenario of being an average PE guy who can't break through to the senior ranks but enjoys the ride through your mid 30s before doing something else.

Array

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May 22, 2020

Very insightful, thanks for this.

Mind if I ask what you do now and geographically where?
I noticed you also posted several years ago that you were from PE and were interested in the move to HK/SG. This is also something I would like to pursue given my interest in the region and , as silly as it sounds, I think would be more comfortable with the relationship/social aspects which come with seniority in a deals based role as I am ethnically Chinese. (HK would be my preference, however my Mandarin is garbage and I don't have brand name IB/PE exp, so I think my chances there for a private markets role is limited. Could public markets be a possibility? would CFA help?)

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  • Analyst 2 in HF - EquityHedge
May 22, 2020

Be careful trying to relocate to HK right now - I work in HK and the talk right now is to move out not in for people on the buyside. Things are changing fast in this political climate.

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May 24, 2020

Thank you - this is very helpful! Can you elaborate on what you mean by "good seats?"

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May 29, 2020

Could you give an idea or examples as to what you think are quality seats? Perhaps some factors or variables to consider that differentiate one seat from others?

EDIT: realized another poster beat me to it but still prefer the nuance in my question haha

May 31, 2020

Generally speaking (IMO) it's what you would expect - good AUM / head (or visibility into it scaling to such), good PM (in terms of performance and managerial approach), pathway to a senior role / room for senior additions to the org chart, good comp structure and good brand name.

Said simplistically - you want to be at a place where you can develop, grow and get compensated adequately for performance

Array

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May 23, 2020

I was in a pretty similar position to you at one point. I was an associate looking at the next 6+ years needed to potentially make partner and just didn't really want to do it. I love investing and analyzing companies, but my soft skills could use some work and I probably had some pretty long odds to making partner one day. The day-to-day of managing a process, dealing with third parties, preparing for a very formalized investment committee, and all that other stuff just didn't interest me and those are like the key responsibilities of a VP / Principal in PE. I also hated the idea of spending $200k plus foregone earnings to go back to school for essentially no reason. I've since moved to a long / short hedge fund and honestly have no regrets. It's certainly stressful and a different kind of stress from PE, but it's (in my opinion) a lot more exciting as a result. Also, I didn't realize it at the time, but I got lucky and landed in a very good seat and as someone mentioned above, that can be a huge difference maker.

As far as limited career progression and few PM spots, don't stress too much about that. Good analysts can make seven figures and some funds have hybrid roles where you may have an analyst title, but you're in a real risk-taking seat with your own PnL so your upside isn't really capped (probably not going to make $10mm+ though). Also, if you like investing, researching companies, building models, and picking winners and losers, then you can be intellectually satisfied for a very long time as an analyst.

You're also in a position where if you quickly burn out at a fund or don't like it, you can always go back to business school and get back into PE or something else.

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May 23, 2020

How tough is it to lateral between PM roles at hedge funds? Public markets are my passion, but I am concerned that if I happen to blow up at one firm my PM career would be over

Array

May 23, 2020

This is a great question and a key difference between HF and PE. Also between analyst and PM. As an analyst, if your fund goes down, the blame will always be on the PM. But once you are the PM, say at a pod, if you blow up, it can be very hard to persuade the next fund that it was a one-off. Depending on the situation, some guys pull it off and find a second seat. Others can't, and by that time you probably need to find something completely different.

    • 1
May 23, 2020

Yeah as MMPM said if you blow up on your first go it can be really tough to find someone else willing to take another shot. I've seen PMs that blow up at MMs take a step back and join another team as a senior analyst. I'm not sure, but they might make another go at a PM role a few years down the line.

Most Helpful
May 23, 2020

I think it all comes down to how you think about risk and reward. The real answer is that it just really depends. It depends on who you are, your background, your network, what fund you were a PM at, why it didn't work out, etc - there are a ton of variables that dictate what happens next.

I think the answer for all of this goes back to your interests, your strengths, the opportunities you have and your risk tolerance.

When you're younger, it's very easy to say I want to do IB here, PE here, then bschool, PE or HF or whatever. That's fine but once you get past that ~6 year mark, life and career trajectory is not always so straightforward. That's just the reality of it.

Everyone likes to talk about how great PE is or the upside of HFs. But what people don't talk about is the downside. Let's not even talk about the top percentile that gets the jobs at the top funds, because the upside there is well understood. Nobody needs to spell out the math - if you're a VP/Principal at a megafund or upper MM with a path to partner - we know it's good. How many people is that though? When you think about the funnel to get there and how many "new" spots are created at the VP level (i.e. if you weren't a pre-mba at that shop and were an external hire) and then how many of those firms actually have room for said VPs to make partner, it is a small number. So what happens to everyone else? Let's say you have to go down market and you join a smaller firm. Couple hundred million of AUM, maybe less. 1 or 2 funds. Invests in the middle or lower market. "Operational and sector expertise" "Partnering with great management teams" "Investing in good businesses". You make $400-$600k. Get 1-2m of carry dollars at work. Assume 2x MOIC. Oh nevermind, turns out we had a big dud in our portfolio. That 2x is now 1.25x or 1x. Oh wait, now we can't raise fund 2 or fund 3. Oh wait, now we're managing a zombie portfolio for 10 years. Oh wait, so my carry isn't worth much but I have a decent cash comp. Oh wait, I want to get out but now I'm 35+ and the reputation of my fund is not as good as what it used to be. Let's lateral! Oh wait, I can't find a good lateral spot because there aren't many to begin with at a principal level and I'm competing with people from bigger shops going down market (maybe they can't move up, there's no room, didn't work out, move to new geography, whatever) and oh by the way, their fund isn't on wind down mode. So then what? You go down market or you go corporate. Maybe you roll the dice again at another similar fund setup. Maybe you have a strong network and get lucky and land something great. Who knows? Maybe you go in-house and can be VP of corp dev somewhere or a senior manager. Likely taking a 20-30% paycut if not more. And then it's a slow grind upwards to climb the corporate ladder. Maybe you get lucky and join a company with equity that compounds 25% per year - fantastic! Suddenly the comp differential isn't as great. Maybe 2 years later a global pandemic hits and suddenly you get laid off on a company wide zoom call.

The point of all this is that it's just really hard to say. What if you became a PM and had 2 good years and pulled in 10m? But your career was over after that. Maybe you're 35-40 at that point. Compare that to the downside PE scenario and maybe it would've taken you 15-20 years to make that same amount...

I can paint a similar downside picture for HF roles as well. The downside scenario in HF is probably worse than the PE one. But if the focus is on the downside, maybe the answer is this is the wrong career field for that person and that person is better off finding a field where the focus can be on the upside.

That's why I think ultimately it comes down to your interest, strengths, opportunities and risk tolerance. Not everything is going to be linear but if you are good at something and are passionate about it, that will maximize the probabilities for success and having attractive opportunities

Array

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  • Principal in PE - LBOs
May 23, 2020

JFC that PE story is depressing lol (but not far from the truth)

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May 25, 2020

exactly what I was about to say. When I consider my current age and position in life and read this, I just want to give up.

  • Research Associate in HF - Event
May 24, 2020

it doesn't take a genius to figure out that pick your Wharton/Harvard/Ivy/Stanford/Duke/NYU/Georgetown/Michigan classmates, probably a good 100+ went into banking, a good majority of them are now in PE across MFs/UMM/smaller principal buyouts, and a majority of those will also be going or have started b-school.

There are simply no where near the amount of VP and up spots for the amount of your former classmates in pick class of 2013-16 graduates who are currently in private equity roles to move up to. It's blatantly obvious and what i find is that most kids from my class will not be in the PE field post-MBA because they simply can't cut it compared to the top [1-20%] of kids as funnel narrows at each lock-step.

    • 1
May 24, 2020
jman:

I think it all comes down to how you think about risk and reward. The real answer is that it just really depends. It depends on who you are, your background, your network, what fund you were a PM at, why it didn't work out, etc - there are a ton of variables that dictate what happens next.

I think the answer for all of this goes back to your interests, your strengths, the opportunities you have and your risk tolerance.

When you're younger, it's very easy to say I want to do IB here, PE here, then bschool, PE or HF or whatever. That's fine but once you get past that ~6 year mark, life and career trajectory is not always so straightforward. That's just the reality of it.

Everyone likes to talk about how great PE is or the upside of HFs. But what people don't talk about is the downside. Let's not even talk about the top percentile that gets the jobs at the top funds, because the upside there is well understood. Nobody needs to spell out the math - if you're a VP/Principal at a megafund or upper MM with a path to partner - we know it's good. How many people is that though? When you think about the funnel to get there and how many "new" spots are created at the VP level (i.e. if you weren't a pre-mba at that shop and were an external hire) and then how many of those firms actually have room for said VPs to make partner, it is a small number. So what happens to everyone else? Let's say you have to go down market and you join a smaller firm. Couple hundred million of AUM, maybe less. 1 or 2 funds. Invests in the middle or lower market. "Operational and sector expertise" "Partnering with great management teams" "Investing in good businesses". You make $400-$600k. Get 1-2m of carry dollars at work. Assume 2x MOIC. Oh nevermind, turns out we had a big dud in our portfolio. That 2x is now 1.25x or 1x. Oh wait, now we can't raise fund 2 or fund 3. Oh wait, now we're managing a zombie portfolio for 10 years. Oh wait, so my carry isn't worth much but I have a decent cash comp. Oh wait, I want to get out but now I'm 35+ and the reputation of my fund is not as good as what it used to be. Let's lateral! Oh wait, I can't find a good lateral spot because there aren't many to begin with at a principal level and I'm competing with people from bigger shops going down market (maybe they can't move up, there's no room, didn't work out, move to new geography, whatever) and oh by the way, their fund isn't on wind down mode. So then what? You go down market or you go corporate. Maybe you roll the dice again at another similar fund setup. Maybe you have a strong network and get lucky and land something great. Who knows? Maybe you go in-house and can be VP of corp dev somewhere or a senior manager. Likely taking a 20-30% paycut if not more. And then it's a slow grind upwards to climb the corporate ladder. Maybe you get lucky and join a company with equity that compounds 25% per year - fantastic! Suddenly the comp differential isn't as great. Maybe 2 years later a global pandemic hits and suddenly you get laid off on a company wide zoom call.

The point of all this is that it's just really hard to say. What if you became a PM and had 2 good years and pulled in 10m? But your career was over after that. Maybe you're 35-40 at that point. Compare that to the downside PE scenario and maybe it would've taken you 15-20 years to make that same amount...

I can paint a similar downside picture for HF roles as well. The downside scenario in HF is probably worse than the PE one. But if the focus is on the downside, maybe the answer is this is the wrong career field for that person and that person is better off finding a field where the focus can be on the upside.

That's why I think ultimately it comes down to your interest, strengths, opportunities and risk tolerance. Not everything is going to be linear but if you are good at something and are passionate about it, that will maximize the probabilities for success and having attractive opportunities

This is an all time great post with so many great points. It should be pinned somewhere. SB

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May 27, 2020
jman:

I think it all comes down to how you think about risk and reward...

I'm a touch late to this discussion but wanted to weigh in. Unfortunately, I don't think this is a fair description of the downside scenario in Private Equity. Some thoughts:

I agree that not everyone makes Partner, but I do think it is a higher percentage than you may assume -- especially if you remove those who leave the industry because they honestly choose to (for example, to pursue entrepreneurship). As PE firms raise larger and larger funds, they are able to support a greater number of Partners, which combined with retirements, do create a meaningful number of openings. You certainly don't need to be the best VP to make it.

The smaller funds are much more resilient than you give them credit. I've seen plenty of fund returns in my time and a surprisingly large number of them have a dud (full write off) or multiple deals that went poorly. Even so, these funds were all well into the carry and still achieved above a 2.0x. Portfolios are generally diversified and absent a major catastrophe a 1.0x or a 1.25x is rough. Plenty of funds with highly cyclical portfolio companies managed to do quite well through the 2008 recession. Furthermore, because funds tend to be raised every 4-5 years while the investments don't really materialize for 6-10 years, a bad fund won't really hurt you until 2 fundraises later. If you're a VP and you see the portfolio has gone south, you have years to find a better situation before you actually get burned.

As a VP you can very easily hide from a bad track record when changing firms. Most folks will place the ultimate responsibility on the partner, whether or not the VP was the driving factor behind the investment performance. This is super frustrating when investments go well but it also offers downside protection from bad deals. You can easily move firms and your bad deals are forgotten forever. And don't forget, the PE universe is HUGE -- there are hundreds of firms in the country where you can make millions as a mid level PE professional and your only real competition is people at other PE firms. And as someone who very recently lateraled, believe it or not, there are a pretty large number of Principal roles available at very reputable firms, particularly if you're okay looking in multiple geographies.

This next comment really supports your commentary but it is also worth mentioning: While it is easier to move down market than up market, it is far from a slam dunk. Someone who has worked at a megafund and attempts to work in the lower middle market is in for a very big surprise. The LMM doesn't really care about the model. There is no one in the LMM to outsource your work to .. you need to do it all yourself. And don't expect the acquisition target to have audited financials, any discernible data, or even a CRM system. The shock factor is the same going from the LMM to a MF.

Anyways, didn't mean for this post to be this long and I don't want to take away from the accuracy of your underlying message. The nightmare scenario in PE is not a pretty one. But fortunately you need a lot of things to go wrong to not at least land on your feet. I had friends that worked at zombie funds, or got pushed out at the VP level, or worked on some really bad investments. They have all ended up more than fine. Once you reach the post MBA level you have to be REALLY unlucky to get ousted from the industry.

As for the career path in public markets, I'm so vastly unqualified to speak to the public markets that I unfortunately can't be helpful there.

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May 29, 2020

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  • Prospect in IB-M&A
Jun 10, 2020

Stickler alert -- it's "jibe" with PM.

If you didn't "jibe" with him, he might fire you for such an infraction.

Jun 15, 2020
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