Dumb Question - ex-consultant vs ex-banker?

Since when is Bain Capital considered "worse"? It has a fantastic reputation. I can't think of a PE firm I'd rather work at (except perhaps H & F -- heard good things about them).

What exactly is the 'ex-consultant' vs. 'ex-banker' stigma?

Follow-up question: Can anyone rank the major PE firms on their return track records? Who's overrated/underrated from a performance standpoint?

Very interesting data, thanks for posting that link Dosk. It is very entertaining to see that the big guys have the name but the most successful ones are the middle-market guys. Heck, they probably work less too!

Big name = big press = more sharks = higher purchase price = lower IRR

No name = zero press = fewer sharks = lower purchase price = higher IRR

do the math ..nuff said..

Thanks dosk. The interesting thing about the data is it suggests that, on average, buyout firms don't realize their expected returns on investment. The data shows that the returns on the asset class range from 8% to 24% depending on the time period measured. I work in a PE group of a multistrat hedge fund and am not doing large buyouts, but I can't see us doing a deal if we thought our 3-year IRR would be

You need to look at it from the perspective of your limited partners. They have a hurdle they need to get to, as well, and it's all based on benchmarks - mostly public equity based. While the 20-25% IRR hurdle is your generic number for private equity, you have to view private equity as the alternative to public equity. Most fund managers invest in private equity purely to help the average weighted return beat the public benchmarks.

Because of the risk level, LP's usually don't put more than 5% or 10% of the funds value into private equity or alternative investments. They also expect returns to outpace public benchmarks by 10-15%. In a good year, when the S&P is returning 10-12%, it's easy to see why LP's expect 25% IRR's. However, everyone knows that the more money you put to work the harder it is to make larger IRR hurdles. Especially when you are talking about taking large public companies private. If they were performing at 10% in the public markets, it's still a challenge to get them to 25% in the private...if not impossible. BUT if your performance as a private company outpaces it as a private significantly, I think that's a win. And as such, since it's such a large investment, I don't think anyone, LP or GP alike, expects 25% IRR on mega-buyouts.

My point is that LP's know the more money you put to work the worse your IRR's will be. Spread over their entire portfolio, PE's higher returns help counter-weight lower returning investments and bring fund performance up without risking too much capital. LP's tend to invest more dollars per fund into the mega funds (that is, weight them in a larger way) because the probability of them failing completely due to size is much lower than a smaller fund. And they are much willing to take a 17% IRR on 100mm of capital than 17% on 20mm in a middle market fund, simply because that 100mm is counterweighting the rest of their investments that may include public equity.