Given that you go to a good school, why not go directly to PE instead of IBD first?

ObjectiveNYC's picture
Rank: Baboon | 104

Let's say you go to an Ivy League or a top 10 MBA program - if you're in that position, why don't more people pursue PE right out of college? My logic is that there are fewer students in top schools than there are PE firms, whether they be large PE firms or boutiques.

I just hear a lot of - you have to do this before you have this exit opp, but why don't people start with the exit opp, especially when they are in a good position to get it?

Comments (23)

May 11, 2014

Post-MBA yes you can go directly to PE
Post-undergrad it is a lot harder and hiring numbers are a lot leaner, therefore many just do two years at IBD and then move on to PE.

Nothing wrong with your logic, it is just a lot harder in practice. I know a few people from target schools who went directly to HFs, but those instances are not as common.

May 11, 2014

There are just hundreds of firms out there though, why settle for IBD when you can start at PE? Even if it somewhere smaller? I just don't see the logic in starting with IBD when people are in a position to start as an analyst in PE.

May 11, 2014

1) Just because there are hundreds of firms out there doesn't mean they are hiring out of undergrad. You can't get a job that doesn't exist.
2) You *pretty much* lose the ability to jump to a large, established fund if you start at a smaller firm. Doing banking first gives you at least the opportunity to get in the door of larger funds. You may ask "if I'm working at a private equity shop (smaller one), isn't what I'm doing more relevant?" Sure, but you're also working on much smaller transactions, which is a different ball game than what you do at upper MMs and MFs.
3) Other reasons to start in IB (as other people have mentioned): network, more versatility to change career courses, and most likely it's more "fun" to be in a 100+ BB analyst class than being the only analyst at a PE shop).

May 11, 2014

There are plenty of good reasons. A few of them are:
1) An analyst stint at a BB follows you for the rest of your career as a stamp of approval. In case you wanna switch lanes, it is likely to be perceived more prestigious than an analyst stint at a small PE shop
2) You wanna try and go to a more prestigious fund than were your options out of school
3) You appreciate the network you get with your analyst class
4) You want the learning experience (which will likely be very different from PE, depending on where you end up)

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May 11, 2014

From what I've read, you do pretty much the same thing as an analyst in PE or IBD. I would also think that you would learn more being at a smaller shop than a larger one. I suppose if you don't know where you want to go long-term, maybe starting at a BB can help.

May 11, 2014

IBD is seen as a prequisite for PE. Most PE firms don't have the bandwidth for a proper analyst training programme in place that can teach you the modelling or give you the necessary deal experience which you get right off the bat at banks.

From experience, you fall into two categories if you go from college to PE. The first is you end up at a fund with some sort of analyst training programme (whether it be outsourced to modelling courses or not) and you spend a considerable time getting to grips with the industry. For example, Terra Firma have a rotation programme that takes you through various business aspects. The other category is that you end up at a small shop, sourcing/cold calling, pulling up research and doing general due diligence. That doesn't necessarily translate into pure play PE experience.

May 11, 2014

You make it sound like PE vs. IB is a choice most people have, when in fact it's not. In any given year, there's 15-20 spots for MF PE analysts. Compare that to close to 1,000 spots for BB IB analysts.

May 11, 2014

Will echo some of the other things already said, but there are VERY very few MF PE spots out of undergrad (certainly less than the number of kids at target schools). By sheer nature of the industry, there aren't as many opportunities, which makes gunning for IBD a more likely and feasible option. If you're to compare the analyst lifestyle and features of IBD vs. MF PE, PE is almost objectively better in every regard: higher pay, comparatively less hours, less bitch-work/idle time, a great sense of optionality/prestige, envy from all your IBD peers. The distinction here is with boutiques, who don't necessarily share that laundry list of benefits.

I do think a lot of undergrad PE opportunities are slowly becoming a very viable option, so we'll see a rush of top kids go for it in the coming years.

Best Response
May 11, 2014

There are a few questions embedded in this thread:

  1. Why don't undergrads head for Analyst roles at small PE shops? Because, in general, small PE shops don't consistently place into larger funds or related corporate roles.
  2. Why don't Analysts at small PE shops place consistently into larger PE funds, given the experience is presumably more relevant than an IB stint? The lower-MM PE landscape is diffuse. It's very difficult to say what level of exposure an Analyst at a relatively unknown PE shop has had. Certainly, there are a few superstars, but the recruiting work necessary to uncover these candidates from the hundreds of firms around the country is simply too vast for any headhunter or large PE fund to handle. Analysts at large banks have relatively consistent experience, which creates some floor level of competence vs. small PE analyst. From this filtered candidate set, headhunters and PE shops are able to identify high achievers more readily.
  3. Why don't undergrads head for Analyst roles are large PE shops? They do! But, as has been mentioned earlier, these positions are few and far between, reserved for a small group of graduates. Simply, there aren't enough positions to go around.
  4. Why don't upper-MM PE shops hire more undergrads and skip the IB training ground? For all but the very largest funds, there simply isn't enough headcount to effectively train and develop fresh graduates while pursuing deals. An upper-MM PE shop would have to hire more (extremely expensive) Principals / VPs to handle the tasks of sourcing / evaluating investments while training new hires. It's cheaper to pay more to hire pre-trained candidates than it is to hire more senior talent to manage a training program.
  5. Why don't MF PE shops hire more undergrads and skip the IB training ground? This is starting to happen, but it's still in the early stages. In particular, KKR was heavy in hiring Analysts this year and light on their incoming Associate class. Time will tell whether this experiment works. No surprise it came from one of the public firms where there is more pressure on compensation.

Hope that helps.

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May 11, 2014

This should be the only and automatic reply for every thread created asking about IB vs boutique PE. Way too little use of the search function and way too many posts like these being created.

May 12, 2014

Think the question should be: Why would PE shops hire you (out of undergrad) when they can hire a more polished, well rounded version of you (two years later) that they don't have to train?

The supply of buyside jobs is very small compared to the demand.

May 12, 2014
iamfromcanada:

Think the question should be: Why would PE shops hire you (out of undergrad) when they can hire a more polished, well rounded version of you (two years later) that they don't have to train?

The answer would be that they could pay you substantially less, but I have addressed this potential benefit above.

May 12, 2014

The greater question is... Why shouldn't I just start my own hedge fund out of school? I got an A in my Investments class.

http://nymag.com/daily/intelligencer/2012/10/world...

Some of the recent posts in this forum highlight the lack of research done by the poster, and come off troll-like. That being said, I did PE out of UG and if you are looking at the route yourself, send me a PM.

May 12, 2014

Short Answer: PE shops want the skill set you learn/develop as an analyst

It's the same reason why even the highest baseball draft picks who get multi-million signing bonuses still slug it out in the minor leagues for a couple of years.

Why hire some kid out of undergrad when you can get the same kid 2 years later with the added benefit of completing an analyst program? The skill set for a PE associate is more closely aligned to that of an IB analyst instead of an undergraduate student and success in IB is a more accurate predictor of success as a PE associate than top-notch undergrad performance. If effect, the analyst programs are acting as a screening process in addition to skill set development.

If I were in PE, I would not even think of hiring someone right out of school, no matter how eye watering. I would tell them, "Wow! Amazing performance / resume / etc! Looking foward to talking in twelve months during PE recruiting at your specific bank!"

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May 12, 2014
FormerHornetDriver:

Short Answer: PE shops want the skill set you learn/develop as an analyst

It's the same reason why even the highest baseball draft picks who get multi-million signing bonuses still slug it out in the minor leagues for a couple of years.

Why hire some kid out of undergrad when you can get the same kid 2 years later with the added benefit of completing an analyst program? The skill set for a PE associate is more closely aligned to that of an IB analyst instead of an undergraduate student and success in IB is a more accurate predictor of success as a PE associate than top-notch undergrad performance. If effect, the analyst programs are acting as a screening process in addition to skill set development.

If I were in PE, I would not even think of hiring someone right out of school, no matter how eye watering. I would tell them, "Wow! Amazing performance / resume / etc! Looking foward to talking in twelve months during PE recruiting at your specific bank!"

Again, the obvious benefit is that you can pay fresh undergrads significantly less than post-IB analysts. However, as I addressed above, practically, it's tough to justify the training expenses (essentially just the cost of senior professionals' time) for anything other than the largest funds - and even then, time will tell if this experiment pans out.

May 12, 2014

In terms of MBA recruiting, you have to consider the talent pool you're competing with, given if you don't have any finance experience, let alone buyside experience. For one matter, remember that there are significantly more Associate roles rather than VP level roles, the level at which you would be looking to place without comprising the benefits you accrued by getting an MBA, because most Associate positions are really churning these guys over every 2-4 years and don't necessarily view them as a long term investment. That being said, if the fund is thinking of them in that light, they often encourage business school if they want to bring them back, or even if they don't. So if you're trying to break in from an MBA program, you are essentially competing with the best of the best, guys that have already done banking for 2 years, another 2 at a PE shop and found their way into a reputable MBA program. Why take a chance on someone without that experience when those applications are plentiful?

Although that is the generally the rule, there are more off the run shops that are willing to look at unique experiences and take a chance, but these are generally not the megafunds with a pretty standardized recruiting process. This is essentially the position I'm in at the moment and I'm just trying to figure out the best way to position myself, but have received a decent amount of resistance from recruiters and HR. I guess it all comes down to networking anyways and doing things in a weird way....

May 12, 2014

Plenty of PE shops will take people out of undergrad. Not plenty of big/super established ones that are always mentioned on this board or the WSJ/FT, though. Key is to find those smaller shops when you are in college, some directory, friends etc. Cold call/email them and ask for internships even if unpaid. The worst is that they say no or that you spend a summer doing whatever. It's a good thing to have on the resume for other PE/banking interviews in the future. I know for a fact that some shops in Asia don't have formal internship programs but will give out internships if people seek them out and ASK.

May 13, 2014

most, and pretty close to all, of the megafunds (in the US) formally hire analysts out of undergrad, assuming that's what you mean by "big/super established [funds]"

May 13, 2014

Agreeing with most of the above (formal training, BB looks good on resume, you'll be working with more analysts that will build your network if you make ib/pe your career, etc) you'll almost certainly see and close more deals in IB furthering your learning in a two year stint. I've never been at a megafund so maybe it's different there but in general PE firms don't do that many deals. There's a chance you could work for two years as an analyst and the fund could close 0-1 deals. Look at funds websites and see how many portfolio companies they have in individual funds-not too many and depending on where they are in the fund lifecycle they could be at the end of the investing period and only be doing bolt ons for existing portfolio co's.

May 13, 2014

Noiven - yes that was my point. The OP should dig around for smaller PE funds that will be more receptive to havnig a fresh grad come out or an internship opportunity. Like you said, the big funds are very systematic in what they want and how they hire.

May 13, 2014
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May 13, 2014