Buyside ER versus PE FoF - Exit Opps

DCFwacc's picture
Rank: Senior Monkey | 70

Hi,

So I may have a potential decision to make between a job offer for a junior equity research position (generalist role, working for a "best ideas" team of analysts) at a top money manager in Boston, and an analyst position in the fund of funds group of a top international, European-headquartered PE firm in NYC.

Up until recently I had been interesting in pursuing a career in ER. I'm currently studying for level II of the CFA. I don't know a whole lot about PE, yet. I'm currently 2.5 years out of undergrad.

My question boils down to exit opps for either. I figure I'm not going to get too many opportunities to join a PE firm (non-target school, non-target entry level job) in the future and given my potential interest in PE/VC as a career, I figure this would be a great opportunity to get some experience in so that I would have the chance to choosing said career path. But if I decide it's not for me, is PE -> ER doable? Keep in mind that the CFA will become a struggle to complete given the hours I'd be working and the fact that CFA just becomes less relevant when you're in PE.

Also, is PE FoF -> PE/VC easy to do?

On the other side of things, the ER position at the buyside firm would encourage CFA completion and probably allow for HF or other buy side ER opportunities down the line.

I think either would help in terms of grad school as they are both highly reputable firms, though insight on that would be appreciated as well.

Another issue is I'm currently living in NYC and would much prefer to stay here rather than move to Boston (though the Boston opp is a highly reputable one so I would move if I didn't have this potential NYC PE offer). This might be skewing my feelings.

The PE position would pay out more after bonus, but comp for the Boston ER position is good enough that salary wouldn't play into my decision all that much.

Basically, what has more to offer, buyside ER or PE FoF? Of course it's subjective and of course it ultimately depends on my career preferences, but I just want to see what the opinions are on which would provide more opportunity/flexibility in the long run.

Thanks a lot in advance.

Comments (14)

Feb 18, 2011

direct investment research > any FoF work in terms of work experience.

How's the pay for both?

Feb 18, 2011

The PE FOF --> PE (direct) is not the easiet transistion, as the skill set you learn at a FOF is much different than what you would learn on the direct side. At a FOFs, you are focusing on manager due diligence (read up on the 5 P's), while at a PE shop you are figuring out how to value a company.

Actually, ER offers a more transferable skill set to PE, as you will be looking at valuing companies, the difference being ER looks at public firms while PE looks at privately held firms (for the most part).

Also, the CFA is getting more and more important. I have been speaking with a number of people in ER lately (from junior analysts to senior PMs) and ALL of them say the CFA is a must. It really caries a lot of weight. It may not be as valuable for PE, but it does add value to you as a candidiate.

Feb 21, 2011

Thanks for the replies. Twopaths - the base salaries would be similar but the bonus would be higher in PE FoF (50-60% rather than 30% for the ER job).

tan86 - I figured there would be a lot of due diligence involved, but I was hoping the work that would be done for the secondaries part of the business would be transferable. From what I've gathered, there is a bit of company valuation in the secondaries business.

Would PE FoF -> MBA at a target -> PE (either VC or buyout fund) work?

And what if I change my mind. Could:

PE FoF -> MBA at a target -> ER work? (assuming I get the CFA done)

Feb 23, 2011

Bump.

    • 1
Feb 23, 2011

I think if you're gonna throw an MBA in the mix you could probably do either one for a couple years and then ultimately switch industries. Having said that, direct investing is certainly more preferable to FoF work and you'll have a better time transitioning to a PE role out of ER if you decide cap markets isn't your thing. Personally I'd avoid FoF work but again, if you're set on MBA you could probably do it and "reset" after you graduate to whatever field you decide to do.

Feb 23, 2011

So research for a buyside firm is still better experience for PE than getting some private company modeling experience at a FoF? I am sure that I would at least be doing some buyout/growth company modeling with secondary acquisitions. I don't know what percentage of my time would be spent doing that though. I'm hoping to get some more information from the firm. Also, consider the fact that there is built-in networking involved with PE FoF.

I know that there is some aspect of "resetting" oneself in grad school, but I also know that previous experience could go a long way, especially in the PE/VC industry.

Thanks for the responses so far.

Feb 23, 2011

As you said, you need more details from the FoF to get a sense of the experience you'd get there and whether it will help/hurt a possible future transition. I'm still leaning to the ER opportunity and if you're going to do an MBA, it will be in the next 2-3yrs anyway. While prior experience can help in post-MBA interviews, I'd still say the story is better out of ER than FoF any day of the week. There is a distinction between FoF and secondaries investing btw.

Feb 23, 2011

If it helps to clarify things, the job description states:

"Secondary fund of funds:
- Participating in all aspects of investment decision process and transactions for a multi-billion
dollar private equity fund
- Valuing and pricing equity interests in private equity funds and companies
- Preparing financial projections and transaction modeling
- Preparing investment recommendations and presentations to the global team and Investment
Committee
- Monitoring investments and development vs. targeted performance
- Preparing reporting presentations to Limited Partners and Advisory Board

Primary Fund of Funds:
- Screening and conducting research on the North American Private Equity market
- Participating in meetings and conducting due diligence of fund managers (strategy, team,
performance)
- Preparing investment recommendations and presentations to the global team and Investment
Committee
- Monitoring portfolio through ongoing dialogue with managers and attendance of investors
meetings
- Preparing reporting presentations to Limited Partners"

It is clear that the Primary fund of funds responsibilities wouldn't be very relevant and is much more in line with typical FoF work. However, I would expect based on my first interview that the secondary FoF would involve bottom-level modeling.

Feb 23, 2011

Did you get a sense that the secondaries position involves buying entire portfolios or are there instances where you're buying individual positions. My opinion is still to head to ER. If you're focused more on staying in NYC and are trying to justify that just take the FoF and get your MBA in 2-3yrs. The pay diff doesn't matter since cost living is > in NYC so the offers are net net the same right?

Feb 23, 2011

The secondary fund of funds involves the purchase of stakes in private equity funds and portfolios of stakes in unlisted companies. This is both for mature and immature (<50% paid-up) funds.

Simply put, I don't think buying individual positions will come into play, though there probably will be instances of buying very concentrated portfolios. Either way, I assume from what I have learned thus far that due diligence applies to both the funds themselves as well as the underlying holdings.

Thanks a lot for all the help. I definitely understand what you are saying and realize that this is one of the pitfalls of trying to squeeze into PE via FoF. I still think the "working on a deal" component of the job (regardless of whether it's for a stake in a fund or a stake in a company) and the modeling that comes with it would be valued experience for PE shops. Then again, my time spent doing such work might be minimized and maybe something I would have to "embellish" on my future resume.

The buyside ER opportunity would be much more directly research related with very little noise in terms of crap responsibilities (e.g. portfolio administration).

Maybe, as you suggest, getting an MBA will make this decision somewhat irrelevant for now if I am undecided between PE and ER for the long term.

Thanks again, and any other opinions are more than welcome.

Feb 23, 2011

Yep you got it, good luck with the decision.

Feb 23, 2011

I would go with ER. FoF are a dying bread of PE investors. If you want PE, don't go to a FoF.

I assume you are considering the likes of Wellington versus Partners Group?

Feb 23, 2011

Very similar firms to the ones you mentioned, but not those ones specifically.

Dying breed from an industry standpoint? As in they're losing a lot of business? Would you predict serious problems for them in the short run (<5 years)?

Thanks.

Feb 23, 2011
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