Are top MFins target programs for Private Equity firms?

People who fail to progress vertically at a PE firm tend to (i) move to another firm, (ii) exit to industry, (iii) move somewhere else within finance, or (iv) run their own thing.

(i) A lot of people move 'down market', meaning they go to a firm lower in 'prestige', AUM, the cap scale, or geography. The guy who can't get promoted at a MF will look at the MM, the guy in the strong MM who isn't getting promoted looks within his comp set or towards the true MM, the guy in the true MM is looking at the lower MM, and so forth.

(ii) Just like banking, people at the VP level or higher will sometimes exit to an industry role. Sometimes this is actually planned as a desired path; some guys don't like the grind, and if they're at a shop with a ton of travel and a demanding lifestyle, will gladly take a role with upper six-figure comp that lets them spend their 40s in a cushy 50-hour/week job that lets them see their kids grow up, enjoy their wife (hopefully), and not get increasingly more fat and stressed like everyone else.

This usually isn't a corpdev exit like bankers take, it's more often a senior (CEO, COO) operating role. Sometimes it's into a portfolio company of the very firm they're leaving. Very often these guys are really in demand as plug-and-play operators for buyouts that are entering private equity ownership for the first time.

In those scenarios a management transition is more likely. It's for two reasons: (a) chances are the business was under-managed in some way (why else would the sponsor be getting involved -- it was either a distressed situation or a good-performing business that could have been cranking at an even higher rate -- either way, the sponsor has some kind of value creation thesis), or (b) even if it was managed fairly well enough, the sponsor prefers operating executives who are familiar with the private equity model and used to giving sponsors exactly what they're looking for.

All that holds especially true in the special situations world, the PE and HF guys who look at the cool off-the-run stuff (often buy-and-build plays) where there's an especially strong power law in terms of accumulative advantage. In plain English, instances where the #1 guy is three times as large as the #2 player, both of whom are 5-10x as big as the next guys. These tend to be niche spaces that require deep, deep specialized experience.

A great example of the latter (deep experience) and not-so-great example of the former (concentration) is the Pershing Square CP Railway deal. Hunter Harrison was the guy, and because Paul Hilal (now at Mantle Ridge) found and recruited him, they unlocked over $2.5b in value for their fund. I just dug up an HLS case study on the deal.

(iii) Some guys will take other roles in finance. This could be a HF role (there are a lot of shops that will give somebody with decent pedigree a shot for a year; it's usually done with a performance-driven comp package -- think a livable but not extravagant base and PnL-fixed bonus), a bounce back to banking, or an AM position (seen this only a couple times).

(iv) Other guys take their earnings and skill-set and work for themselves. In the past five years I've seen a ton of guys set up 'XYZ Partners' or 'Agile/Mobile/Hostile Partners' or 'Washed Up Ventures' and invest in startups. If you have halfway decent relationships you can usually get into the Series B or C of decent companies that had good venture investors all the way from the seed / a healthy board / good continued growth trajectory. Unfortunately, most don't have the relationships, and this means a website littered with the logos of a bunch of startups no real venture investor took a second meeting with that ended up stalling out and are either dead or limping around waiting to die.

I've seen things as diverse as franchise investments (one dude bought six Mickey D's, another bought three car dealerships), real estate, and private credit (loan-shark type stuff but for lower middle market businesses).

Some guys continue PE-type stuff on their own; micro-buyouts or ultra-lower-middle-market rollups they sourced on their own. I've also seen some take the fundless sponsor route. They sit around until they find a deal they like, then they do all the work stitching together an equity pool and the financing (often through some longstanding relationship where a guy they fed business to for 15 years will give them the 3x leverage they need for the $40m buyout they're trying to do) to close it as an independent deal.

This can work really well. I know a guy who's done two since leaving a Welsh Carson / Berkshire / Harvest type place. His first was a $15m deal that he put $5m of equity into (no equity co-investors). He worked pretty hard for two years and (get this) quadrupled revenue. As he lined up an exit, he ended up accepting an offer that was for a full multiple turn lower than his best offer because that bidder agreed to sell him a business unit they no longer considered core. It was a $300m TEV transaction that he was able to finance with 6x leverage (and thus again required no equity co-investor, thanks to his MoM selling the first business).

Off the strength of that he has attracted all kinds of LP interest for a lower middle market strategy. What originally looked like a career stall (leaving a prestigious, established sponsor after failing to originate anything for several years following his MBA) turns out to have worked out smashingly for him. He'll be running $500+ in his first fund this time next year. Funny how the world works.

You're both thinking about this in the wrong way. I mean this with no harsh tone of voice - the world does not operate around you - you win by identifying the way the world operates and how you can maximize value for yourself within that framework.

As @TommyGunn" said rather truculently below, PE firms have a really established recruiting scheme that works the way they want it to. It delivers them candidates with very well-honed financial modeling, analytical, and process management skill-sets.

The one knock on the current scheme is that it fails to give accurate insight on who has the soft skills that matter so much more at the mid-senior and senior levels of the industry, but that's why they make it a two-year Associate program: they want a 24-month interview to be able to find that out for themselves. It makes sense, anyway. 'Fit' is such an inherently subjective thing that you can't outsource it to the girls at Henkel or Amity and trust they'll deliver you the right people.

What this means is that they're not going to deviate in any real way from how it currently works. Yes, they could recruit analysts from anywhere on the planet, including an elite MFin program like MIT or Princeton, just like they could recruit them from the Duke MMS, the Villanova MSF, the Bocconi MSc-F, etc. They don't, however. The few firms that have an analyst program focus essentially exclusively on Wharton and the other Ivies, and everyone's associate program is geared on candidates with 2-years of experience coming out of a strong BB, EB, or MM bank (and for those funds with an operational focus, the MBB consulting firms).

It's way easier to figure out how to bend yourself to whatever standard someone has chosen to set, rather than trying to change someone's mind about why the standard is what it is.

In this case that would mean figuring out how to prepare yourself to get a banking analyst job so you can recruit for PE in the cycle most attractive on a probability-weighted basis. If you've already finished undergrad, that's going to be doing a terminal Master's program like the MMS or MSF and busting your ass to get a good banking job.

You can do that by concurrently submitting grad school applications and summer analyst applications for the summer before you'd start your grad program. You just have to be in touch with HR to explain your circumstance. I know several guys that did this, and they're the ones who got the exceptional BB IBD placements out of programs like the Villanova MSF that had the rest of their classmates scratching their heads wondering 'how did he do that?'.