Family office Private Equity - help

lifeinpe2017's picture
Rank: Monkey | banana points 49

Would you work for a family office that does PE? What is the pay difference between direct PE and 'normal' pe?

Please help!

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Comments (26)

May 12, 2017

bump

    • 1
May 12, 2017

Also interested. Assume the pay is a lot less, but hours would be too.

    • 1
May 12, 2017

north of $100k?

May 13, 2017

Currently working at a family office. I would say the base would definitely be lower than MF/comparable to a MM and the upper limit of bonus would be lower than the traditional PE.

    • 1
May 13, 2017

I'll bite.

Many family offices are now in direct competition with your "traditional" PE funds for direct investing.

The key difference that exists between PE funds and family offices that do PE is this: family offices typically invest out of a capital base of a single (or multi) family. Some operate funds, and some don't. Time constraints are more flexible (sometimes there is no time constraint), the type of investment is more flexible (minority, majority, control), and many FOs are "generalists" where they're not relegated to a specific sector.

Hours are generally better at FO, as is lifestyle. Pay depends- base can be similar to a fund, but it really all depends on the specific firm.

    • 2
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May 14, 2017

sb'ed.

Is someone that has operational experience and full deal cycle (corporate development) vs someone coming from IB a better fit for a family office that does direct, co-investment etc.?

What would you look for in candidate?

May 15, 2017

As I'm sure you know, IB is typically the traditional path to PE. That being said, I would personally value someone that has the operational experience and full deal cycle experience over the traditional IB route. Why?

I think exposure to the deal cycle is very, very valuable. Interacting with management teams, exposure to execution, and the ability to present yourself professionally to potential co-investors is in my opinion more valuable than being able to put together a financial model. I'm in no way knocking IB (there are very good bankers that have the same skill set), but I think the deal experience in your two choices trumps the typical banker skill-set- especially the operational experience. Different family offices look for different qualities in candidates, so this may not be the standard, but I can say based on my experience that the deal/operational experience is vital in many cases.

This is what I would personally look for in a candidate:

  1. The "beer" test: can I have a beer with you at an airport and enjoy my time? Fit is very important in a family office setting because teams are typically lean, you'll be interacting closely with the senior guys at top, and in many cases you'll be speaking with family members that you're invested on behalf of. No one wants to work with assholes.
  2. The ability to think outside the box. I have a ton of respect for management consultants (and some PE guys) for the ability to come up with innovative solutions to problems. I can't stress this attribute enough. Being able to structure deals in creative ways, figuring out how to overcome shortcomings in a potential investment (how do I deal with a CEO transition? What can I do to ensure that the day to day of the business is not overly affected by this new development?), etc. are all invaluable traits for PE in general, but I would think more so in family offices since you'll likely be assuming a ton of responsibility due to your small team. I would personally pick someone that has this trait hands down over someone that has a few years in banking with the normal banking skillset. You can teach someone how to model/write a CIM, but I think it would be tougher trying to teach someone how to think creatively.
    • 6
May 15, 2017

thanks! Do you have any experience modeling a co-investments or minority stakes with 10-20yr holds? I'm assuming the exit of those investment happen through a complete sale or buy out/ option?

    • 1
May 23, 2017
<span itemprop=name>Anon1254</span>:

You can teach someone how to model/write a CIM, but I think it would be tougher trying to teach someone how to think creatively.

The best CIMs I've ever read were written by people with a consulting background. Good consulting training teaches information architecture and visual communication techniques. Career bankers are more likely to put a slide in front of me that's a data dump that spits out of a template that someone else told them is a good idea to put in a deck, or a slide loop that is a loosely correlated group of things that probably should be in the deck (but applying any kind of meaningful structure to that loop is beyond them).

I agree that there's no substitute for the nuts and bolts of deal experience if you want to work in PE. I wish there was a rotational program where someone could graduate from undergrad and spend 1 year at MBB, 1 year in a model-heavy IB group, and 1 year in F500 corp dev. That person would be 25 and a PE-ready machine.

    • 6
Oct 31, 2017

Great post!

    • 1
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May 17, 2017

Depending of the set-up, some family offices may restrict to doing co-investments alongside their LPs. They will still do some internal research/work but will ride on what the LP is doing so yeah goes to less hours and lower comp.

One big thing to take into account is personality fit as already mentioned teams are very small so if you don't get along well with the investment director/CIO your life won't be fun, but that's always a risk to some extent moving to buy-side (a friend of mine works for a mega-PE fund, he hates his direct boss but cannot get reallocated as too much legacy deals and sector specialization)

    • 3
May 17, 2017

@hklevfinbanker nailed it pretty well

    • 1
Oct 31, 2017

Agreed

    • 1
May 21, 2017

I've been in a similar role where I hated my direct boss, fortunately the MD/ Group Head loved me and helped me transition teams

May 22, 2017

I have worked in this exact situation and enjoyed it. You definitely get more input on deals and responsibility but we definitely worked on smaller deals.

Another thing to consider is what strategy the FO uses. I am at a PE growth office because that is what I am more interested in but if you want to do LBOs it may not be the place for you depending on the size/strategy

    • 2
May 22, 2017

Judging from their portfolio / selected transactions page, they rarely do a full lbo, sometimes it is as you mentioned a growth investment. It is something I am most definitely interested in as I have a family background in it. What area of the country did you intern in?

May 22, 2017

I work in Dallas and with branch offices in two other states. We have a very wide range of portfolio geographically which allows for some travel and has been an awesome experience. Let me know if you've got any more questions

    • 1
May 22, 2017

will pm you

May 22, 2017

Sorry can't PM. I work in a Single Family Office on their private equity team. I mainly do modeling work for M&A due diligence and sometimes will do some strategic work with portfolio companies if they are working on acquisition of their own. Not particularly knowledgable on what specific jobs are offered by a family office network or their hiring practices. I personally found my job through campus recruiting and then follow interviews

May 22, 2017

What's the % split of your time between M&A dd and portfolio company work? I'm guessing the whole work flow is more slower then a traditional PE role? What are the pedigrees of your co-workers?

May 22, 2017

I would say split is 85% dd 15% portfolio companies. I would include in that 85% dd time spent on the portfolio companies when I am doing M&A work for them specifically. A lot of times they will do strategic acquisitions on their own. I would not say the flow is slower by any means. Its not as time consuming as BB IB but similar to regular PE. I am the only "Analyst" level employee and I usually work 12-14 hours a day 7 days a week. In terms of pedigree it really varies. We have a couple Ivy league MBA's and everyone else is from top business schools.

Best Response
May 22, 2017

I'll throw in my two cents. Background being that I work at a shop that I would describe as a blend between a traditional MM fund and a family office. Without giving too much away, we invest on behalf of multiple (think 10 - 50) family offices with zero institutional capital under management.

I believe pretty strongly that over the next ten years, you will see family offices continue to play a larger role in the PE scene. Naturally, it follows that I think family office PE is a good place to position yourself. My experience is in the LMM & MM space, and I think the reasons I offer below are less applicable the larger deals get:

  • I've found that, at times, family offices are able to win deals sometimes at lower valuations than traditional sponsors. With longer-term time horizons and more flexible investment mandates, some companies are more interested in partnering with a family office as it can be less disruptive to the business
  • General distrust of "Wall Street". Families like working with people that they know and trust well and are obviously interested in paying as small of management fees as possible. I think you'll see an increasing trend of families seeking to replicate models from larger PE funds, as by taking that level of sophistication in-house, they can save on management fees.
  • There is a rising class of "Penta-Millionaires" in the US.From 2010 to 2015, the number of families controlling $20mm to $100mm rose by 64%, while the number of families controlling $100mm to $1bn rose by 61%. This group is naturally looking to deploy capital.

I'll talk briefly about how family offices are both similar and different to traditional shops.

Similarities to traditional PE:
- We have very defined "institutional" type processes and compete for the same deals as traditional funds.
- The majority of the Associates, VPs and Directors have very traditional investment backgrounds, with most starting their careers at BB or EB investment banks before moving over the buyside.
- I've found my lifestyle is pretty comparable to people I know working at traditional LMM and MM shops. A typical day is about a 12 hour day, but I go through the occasional quiet week, and I obviously have periods where I get crushed when were on deals.

Difference to traditional PE:
- We have a very very flexible mandate, having done VC, growth equity, and late stage buyouts. We look at control and minority investments and while we are primarily an equity shop, we have also invested in debt and hybrid securities.
- Fit and relationships matter, a lot. Even though none of our LPs have veto or approval rights on our deals, we interact with our families quite often. Obviously, it's important that you fit with your immediate team, but it's also key that you can mesh with ultra-high net worth folks. Part of that may require being able to manage some strong personalities.
- Depending on where they fall in the LP hierarchy, some of our LPs have pretty strong co-investment rights, which means we sometimes give up a bit of economics on deals.
- I feel like I play a very big role in our team as a relatively junior member. As an Associate, I've been the primary point of contact for some of our deals. That being said, I'm sure people at LMM to MM shops with relatively lean team structures feel the same.
- Typically, family offices will be focused on long-term hires. I didn't join on a typical 2 year Associate program.
- Following from my previous point, my comp is more heavily weighted towards long-term incentives. I was given relatively meaningful carry for someone my age, but took a bit of a haircut on bonus relative to some of my peers at more traditional shops. My base is largely comparable to people at shops of similar size.

I'm sure some people have had different experiences, but I hope that's helpful.

    • 7
May 22, 2017

"I believe pretty strongly that over the next ten years, you will see family offices continue to play a larger role in the PE scene. Naturally, it follows that I think family office PE is a good place to position yourself. " Completely agree and that's why I'm targeting this space.

If you were looking to add or build a new Associate to your team - what would be your must haves?
Associate base comp north of $100k, any guidelines for bonus? Is an MBA mandatory?

May 22, 2017

I'm honestly not comfortable putting too much comp info in the semi-public domain. PM me on that piece and I can give you some more info.

As for things I would look for if we were hiring a new associate, see some things below. I'll caveat that these are strictly for what I would look for in hiring a junior resource given the relatively unique nature of my team. I'm sure it's different at more established places.

  • Fit: This sounds super generic, but as mentioned above, you've got to have the right attitude and personality to work with families. Even as an Associate, I'm in front of our LPs on a monthly basis and help out a lot with investor relations work. I could be wrong, but I imagine that's different than most people at an MM or even LMM shop. In my first interview with our CEO, we spent 90% of the time just talking and getting to know each other, with 10% or less being focused on my professional experience. Fit is huge, at least at my fund.
  • Strong modelling experience. Given that we look at deals across a broad spectrum, a junior associate isn't going to be able to re-use my modelling infrastructure, as it's really different for each deal. If I was hiring someone junior to me, I would need to be confident that they could dig into a business and accurately model it out with pretty limited input from me. This is particularly important because we look at a lot of proprietary deals where the counter party isn't banked or is being advised by someone who's relatively bush league. As a result, they often won't have a sophisticated projection model built out. This is obviously becomes more common as deals get smaller. I was in a pretty modelling intensive group at a BB, and I build far more complicated models now than I ever did in banking.
  • General Versatility: To my comment above, we need people who can wear a lot of hats. That will be less so for our next hire, but I would say I work 75% independently. I have a different dynamic that I don't really want to go into, but I would look to hire someone that could operate in a similar capacity, but with more oversight from me.
  • Presentation & Polish: I've never asked how this compares to the experience of some of my friends at traditional funds, but we share a lot of materials with our LPs or other potential partners. I know I've talked to people who love the fact that on the buyside they don't have to worry as much about silly formatting and presentation detail, but we absolutely do. Almost all the materials I put together need to be ready to share externally with someone.
  • MBA: Not necessary at all in my opinion. In fact, there's not a single person on my team that has an MBA. A lot of our LPs, while being wildly successful, are very much "Main Street" as opposed to "Wall Street". A lot of them are first or second generation wealth that built billion dollar businesses on their own. Many of them won't connect with or be impressed by a Harvard MBA.
    • 6
Sep 25, 2018
May 23, 2017