Disllusioned in the public markets..is PE for me?
Hi all,
I am an equity research analyst on the sell-side at a BB (~2 years) and plus 1.5 years in a non-finance role in the industry (which is my team's coverage industry). My initial enthusiasm about equity research came from my interest in investing and the excitement of the public markets.
However, after 2 years working here, I have become increasingly disillusioned with it. I see a lot of backward working where Price targets are worked backwards from what the analyst believes, a lot of the work we do isn't actually very detailed, plus my personal experience talking to investors has made me realize that public markets can be really irrational and that perfect market hypothesis holds true in most cases (at least in the time period I have worked at and in my sector).
In my industry, I have seen some companies taken private and I realized that PE makes so much more sense. There is so much value-add minus the irrationality of the public markets.
I know that PE is a stretch for someone from ER, but what steps can I take to move in that direction. And do you think that i am moving for the right reasons? Also, please note that I am open to moving to Asia/EM for PE opportunities if its easier to make a transition there.
To move to PE, you would most likely want to switch to an IB coverage group in your industry which I imagine wouldn't be terribly difficult given your experience. The MM banks would probably be more open to taking someone 3.5 years out of college than a BB, but you need to start applying now because the clock is definitely ticking age and experience wise for you to lateral over to IB. If it's not obvious, the MM banks are going to feed into smaller PE funds that are investing in companies with 2 yrs PE -> HF. If it wasn't implied, I think your reasons for wanting to move to PE are not great, but if it's definitely something you want to do, the switch to IB needs to happen now.
Very useful advice.
Can you elaborate a little more on what issues do people face when moving over from IB to PE?
Thanks
I'll chime in on @NestoGrande's response on issues in PE compared to public markets investing: just make sure you don't have a grass is greener attitude on PE. Personally I like private markets and don't really like public markets. For me too many of the variables are outside of my control and I like the buy, hold and work with companies for years rather than purely analyzing companies from the outside. For public market guys (I'm decent friends with HF and traditional AM folks more than ER guys so I can't really comment on a long term ER career) they like that type of analysis, don't want to become involved in majority owning and operating at a board/advisory level, and public market guys really like having a daily score card. It takes a long time to know if you won in PE and you hold an illiquid asset. I have a good friend who did very well in the HF world and retired in his late 30's but got bored. He tried startups and acquiring companies in a PE style (and did both) and it was just too slow for him. He liked holding more than a few companies and even though he's a fundamental long/short guy who holds concentrated positions, doing deals that may not pan out for 4-7+ years was boring as shit for him. He's heading back to the HF world next month after a 3 year hiatus.
The vagaries and irrationality of the public markets and the analysis may seem like bullshit but you hit some bullshit in PE as well. Deals are much slower, if you're investing in private companies there's a lot less transparent data out there, you can't just buy everything you like (an HF guy makes a trade, PE guys get into an auction or chase off market deals and may or may not be able to buy it no matter how much he likes it and how much time he spends on it) as you get to the higher levels of PE you have to deal with a lot of people issues (execs and senior people at the operating company level), and when you sell you have to deal with the vagaries of public market valuations in an IPO or public buyers are going to assign their valuations to your exits.
Don't get me wrong, I'm a big fan of PE but don't just think it's better because you're getting to the 2 year level of your first job and think something else looks better.
double post
^Thanks for the comments above.Dingdong08
I am actually around 3.5 years out of undergrad, and in my second job (I moved from the industry to ER). What really impressed me most is when I saw a few firms/subsidiaries being taken out by PE firms, and saw how good these investments can be (in terms of making the firms more efficient).
I actually like the idea of not having to deal with daily valuations. On the private side, you can play the long game and focus on generating cash flow. Also, just to give you an idea: Activist investing is my favorite form of public investing, so I am a true believer in creating change through having board representation (instead of being just a passive investor).
BTW, shouldn't private markets have more info since you would have access to internal docs etc before you finalize the deal?
Sequi voluptas aspernatur magni culpa quasi. Suscipit iste eos cupiditate id. Commodi dignissimos aut ipsa omnis. Magni aliquam quidem officiis eum id suscipit officiis ipsam.
Suscipit dicta labore atque rem est deserunt totam. Assumenda soluta expedita nostrum consequatur corrupti eum quo et. Voluptas enim qui dolores in dolores voluptas eum.
Officia rem culpa cupiditate at. Facere deleniti ratione eum deserunt. Dolorum distinctio eum nulla voluptatem aliquam non. Dolor dolores ea necessitatibus rerum nemo deleniti. Officia nostrum quia cumque adipisci facere optio a hic. Accusantium enim fugiat expedita. Et quos est at illo eaque ab enim.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...