Back to Buy Side

I know I should be talking to headhunters instead of asking on an internet forum but here goes:

I graduated with a high GPA from a target in 2009. I went straight to a HF and worked as an Analyst/Associate for a couple years. I left the fund and started a services business in mid 2012. I saw some success and made ~$1M in 2013 and am on track to make ~$1.5 in 2014. I'm getting a bit bored of running the day-to-day and am exploring selling the company or otherwise stepping back. I'm looking to get back into the buy side (PE probably this time) but would probably rather start my own fund if I'm not at the Principal/Director level making $3M+. Does it seem crazy to expect compensation at that level without an MBA or many years of experience? At my company, I work 40-50 hours/week, am my own boss, and am run-rating at $1.75M/yr so I'd need a bump on that to do PE hours and work for somebody else.

 

Congrats on the business success.

To be honest it will be very difficult to get into a PE firm at that level with no PE experience and impossible to get that kind of money. PE tends to bring people up from within, so you go from post-MBA associate and, if you're on the track to get to MD/partner level, have a few positions in between (VP, Principal, etc) you gradually work your way up. It's not impossible but I'd say it's odd to break in at above the VP level unless you have some really extensive and impressive experience (like you were a Senior MD/Partner in Goldman's TMT group or were a c-suite guy at a Fortune 50, at least for the MF's, scale that down to MM firms). There's some lateral movement between firms but it's not as common as in other finance fields and very uncommon at the MD/partner level unless you're a true rockstar (and then you'd probably start your own fund).

You also start building up carry positions along the way so that by the time you're a principal/MD and making that type of money (or more) it's because you're realizing investments and not simply from salary+bonus, and remember the PE investment lifecycle is pretty long so if you get carry it can take 5-10 years to actually realize it.

Launching a PE fund is very difficult without a great and proven track record with a team that's done it together before, and even then it's tough. PE is stagnating right now with regard to launching new funds, and if there is movement people see less overall funds with the same or more dollars invested.

Why don't you grow your company? If you're bored with the operations and day to day of it develop an acquisition strategy, figure out how to finance it and execute it. It would be similar to PE work but you'd be the sole beneficiary. And your final sale could be to a PE fund.

 
Best Response

Unfortunately neither the work experience garnered at a junior level in a hedge fund nor the process of starting and managing a business prepare you for private equity. You don't have the skill set required to compete at a principal level, and you probably don't have the resume to get hired at a middle (senior assoc/VP-level).

If I were you, and I really felt compelled to get back on the investing side of things, I would; (i) hire a good GM to run the business day-to-day. Depending on the nature of the business, you might be able to find some competent guy to run it for $150k-$250k and a bit of equity, leaving you with significant passive cash income; (ii) consider starting a hedge fund. If you have 7 figures of personal wealth you can trade, and your passive income is keeping the lights on ten times over, you might be able to attract some meaningful capital from HNW individuals and family offices at below market terms (i.e. no mgt fee, 10% above a 6% hudle rate or something). If you trade well, you could scale this and get more normal terms. And then if you continue to kill it, you can hire some ex-deal guys to run a PE business for you.

Or, if your business is going to persist for a long time, you could just (i) hire a GM; (ii) head over to french polynesia and convert your quarterly distributions into undrinkable quantities of mai tais

 

You won't make the salary you want, but this is probably how you could make it happen:

Step 1: Continue to grow your business Step 2: Sell your business to a small PE firm; as part of the transaction, you agree to either a) take a normal salary for the size of the company or b) install a professional manager, while you stay on as a Chairman-type role with secondary responsibilities evaluating new investments for the fund Step 3) Once they exit their investment in the company you built, you stay on at the fund.

Life, liberty and the pursuit of Starwood Points
 

OP here.

Fair enough, it looks like entering an existing PE firm doesn't make that much sense given my opportunity cost.

What is the minimum viable size for a PE fund? I think I have a fair shot at getting $10M together. Is that enough to keep the lights on and make a few investments?

 

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