Better to be a Banker than in PE?
Inflation is coming/ here. If inflation eventually drives rates up, asset prices will go down, multiples will go down, borrowing will get more expensive, and PE as an industry is going to get killed. The more leverage you played with, the worse you will get burned.
Banks on the other hand, will suffer with decreased deal volume and lower % of fees because assets are cheaper, but deals will still need to get done and their comp isn’t tied up in assets.
Will banking be a better career over the next decade than PE? Would love to hear the forums thoughts. Especially from people in the industry.
-King Kong
Curious what others think, but I’ve had similar thoughts - mostly that there is so much money chasing so few deals that PE returns will have to decline, and selling the deals might be better than buying them.
Bump
I don't think PE is going to get "killed" or "die". Good investors will continue to make good investments and generate returns. To me the interesting dynamic is the crazy amount of dry powder out there, all of which has to go somewhere.
Processes are becoming hyper competitive. I get a decent amount of intel on what processes in my coverage are coming to market and the trend lately has been preemptive bidding. I had a PE contact tell me "if you are hearing about the process when it kicks off, you're already out of contention". The pace of diligence, the typical process timelines, all being compressed. It's hyper competitive.
My hot take, from a career perspective, the days of "fuck you money" carry are closing fast. Yes you'll make more dough with carry than a banking bonus, but you will also see fewer and fewer PE ballers / billionaires emerge. For multiple reasons - (a) too much capital competing for the same assets = higher prices paid, (b) pressure to deploy capital in a hyper competitive environment will inevitably result in bad investments. Rate environment wont' last forever.
Ripping from user Achilles, who either is a fanboy of or an actual guy who is a pretty smart ex-Bain investor:
Yale Returns: https://static1.squarespace.com/static/55db7b87e4…
Also, look at repeat fund performance—are good returns actually repeatable? Everything I have seen says no—please let me know if I am wrong.
Edit: Also, adding everyone has good returns/ looks like a genius with leverage and asset values going up. Everything thinks they are good investors because there are 34 year olds who have never seen leverage go bad in their professional career.
Very interesting data point on Swensen. Was not aware.
To your edit, 100% agree. My take is we'll see operators beat out financial engineers as buyers can't get away with paying as close to fundamental/intrinsic value as possible and juicing on leverage. If not already, the gap will continue to widen.
The fate of banking and PE are pretty correlated. While I think PE returns are going to continue compressing and people are going to become more aware of how IRR isn't a great measure and actual PE outperformance isn't as prevalent as they think, what do you think will happen to banking when there are less PE funds paying top dollars for assets? Not to mention, maybe analysts stop leaving for the buyside and suddenly you have hotshots that would've otherwise exited, fighting against you for promotions and deals.
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