How do you know if public equity is really what you want?

How should I think about this problem? 


Was interviewing with a HF. The conversation with the PM went well. I liked the other party's candidness and I think the appreciation is mutual. 

There was one question, or more of a suggestion: is investing in the secondary market, be it HF or AM, really what I want? Asking the PM. PM said when I figure this out, call. 

Tbh, I'm not exactly sure. When I fathom the biggest passion, it is building something or bringing ideas into this world. That sounds like entrepreneurship to me, and I'm doing some side projects during my limited IBD spare time.


Meanwhile, working at a L/S HF has always sound super interesting to me and I'm especially interested in the short side. Recently shorted a stock that went down 30% (did do the trade from my personal account), although I don't have a track record or anything like that. I also don't see myself doing entrepreneurship right away. Probably within the next 3-4 years. 


 

2 things I would focus on:

  1. What types of public marketing investing do you like to do? Understand that. Long only vs. single-manager L/S vs. multi-manager "pod" market-neutral L/S vs other style. 
  2. If you have never been in the following situations before, imagine that for now: can you handle the stock you pitched long going down 50% from where you pitched it? similarly, can you handle the stock you pitched short going up 100% from where you pitched it? That's the life you are signing up for. If you want to do long-only, ignore the short part, but you get the idea. 
 

I think it's worse to have drawdown in the public market, because you don't know whether that's permanent impairment of capital or a buying opportunity, until in hindsight. Whereas not winning the bid in the PE results in no permanent impairment of capital (I presume?). 

Sure, you did not create value for LP in the PE scenario. But in the former, you could have lost money for clients and impaired your career prospect (ie. getting canned) - that's creating negative value. 

 
Most Helpful

Never worked on the public side, but to me, one of the most frustrating things about PE was the whole aspect of doing a ton of DD and never really being sure if there was a deal to be done (whereas obviously on the public side, you always have the ability to hit the bid). Basically it's a very binary investing style (either you buy the whole company, or you don't) and that carries a lot of baggage - (1) you are always the top bid (maybe we could say "most attractive bid" if we want to be nuanced) when you do invest, (2) there's less ability to manage the portfolio via position sizing (though you do have way more operational influence), and (3) your opportunity set can be more limited in the sense that it doesn't matter how bullish you are on a sector/theme if there are no sellers (and remember, they generally need to be sellers of the whole company).

I do often think that in retrospect, maybe I should have gone the public route, but perhaps I am also "grass is greener"ing the situation. One good thing about PE is that it does offer more career optionality down the road.

 

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