small fund vs big fund to start career in pe

Hi,

I want to start a career in real estate private equity and am considering various paths to achieve that apart from the "traditional" banking to pe route. In particular I'm thinking about joining a smaller pe firm, which I think would be a great opportunity, but obviously it has some disadvantages and I would like to get some oppinions on how much weight those bear.

Let's assume a pe firm with total equity amounting to around EUR 600 Mio., of which 400 Mio is corporate pe and 200 Mio is repe. The repe fund is pretty new (2005) and was significantly oversubscribed.

Possible disadvantages I can think of:

1) No brand for CV
2) Lower deal flow and transaction volumes to be involved with
3) Lower salary

Possible advantages:

1) More entrepreneurial environment
2) Involved in more parts of the deal, due to the smaller size
3) Fewer hours

What do you think about those possible disadvantages and advantages and are there more?

And the most important question:

How would 1-3 years work experience as an analyst in a smuller pe firm be considered by a bigger (large) pe firm concerning a possible employment as an associate in contrast to 1-3y banking experience or 1-3y at a big pe firm?

Thanks a lot in advance for any input!

 

Depends on what your actual goals are. Do you want to eventually be working at a large REPE shop (MSREF, Blackstone, Apollo etc.)? Or do you want to stick with smaller funds, development, or maybe starting your own small fund/making your own investments?

The former relies heavily on financial knowledge and transactional experience specific to the real estate space, which you'd get more of at a BB RE banking group. The latter relies more on actual real estate knowledge, which you would get at a smaller shop.

This is especially the case at the analyst/associate level, where we're still mainly number crunching, doing due diligence, building presentations and etc. But I think if you've been very successful as a senior guy at a small fund then you'd have options at both big and small shops due to your market knowledge

 
Best Response

The biggest issue with small PE is the variability in quality...for example I started my PE career 3 years ago at a start-up shop that was in the process of bidding on its first deal. 3 years later we have closed multiple headline type deals that all had transaction values greater than 1+ billion. We now own significant RE holdings, operating companies and are in the process of building a diversified conglomerate. The experience has been entrepreneurial, financially rewarding (w the potential to be life altering depending on exits within the next few years), and has provided me with an expansive network. Pro and cons of small PE as follows:

Cons: 1) Less structured work environment 2) Less comprehensive analyst training program 3) Less name recognition 4) Lower comp (generally)

Pros: 1) Intimate knowledge of all facets of the transaction process 2) Access to senior partners within your firm, MDs and Heads of IB, CEOs of major corporations, etc. 3) Entrepreneurial environment is conducive to creativity, people value your opinions and seek your insight 4) Really interesting deal experience 5) Better lifestyle (~60hrs/wk) 6) Opportunity to move up quickly and be compensated accordingly (obviously varies by shop)

If you have specific questions feel free to PM me

 

Just curious Junkbondswap, despite it being a start-up shop, the fund that you joined was of a fairly significant size then right? In the $1bn range?

I think in this discussion it's important to distinguish between start-up funds and established funds (with more infrastructure and more layers), and between small funds and large funds. Large and small funds do very different types of deals, regardless of it being established or start-up, and accordingly analysts do very different types of work. Disclaimer: this is from the POV of someone that is relatively new to the industry

 

Good point...when I first joined we did not have a free-standing fund...we raised money through family/networks and put a large equity piece to work...since establishing a track record the deal structures have changed and we have since raised a sizeable fund with management fees/carry

My scenario is probably unique but again there is tremendous diversity across these types of funds.

 

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