How much “modeling” do you actually do?

How often are you monkeys creating models from scratch? For myself, I'm at a small fund and I'll sometimes have to edit models to change cap stack abilities, but I've never really built anything from scratch. With that being said, I'm obviously proficient in using excel and some more advanced formulas and functions. Interested to hear everyone else's experience.

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Comments (27)

  • Investment Analyst in PE - Other
Nov 23, 2021 - 3:38pm

Multiple a week, depends on deal flow. Depending on complexity, I can usually adjust an old model I've built from scratch, other times have to build from scratch if it's something more esoteric in nature. 

  • Intern in PE - LBOs
Nov 23, 2021 - 9:54pm

Did a model at IMG last week. Definitely prefer Ford though. Don't have plans for creating models from scratch yet, but maybe in 20 years I will.

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Nov 24, 2021 - 1:18am

We always use our in-house models at our firm (like most if not all) but it is always ideal to understand how to build certain models from scratch to really internalize how certain models work in addition to preparation for future technical exams.

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  • Associate 1 in RE - Comm
Nov 24, 2021 - 8:50am

Mostly all plug and chug. Modeling is so overrated. Its what 21 year olds fantasize about.

  • Analyst 2 in RE - Comm
Nov 24, 2021 - 10:46am

Couldn't agree more.

I am at an institutional shop, but on a small team. Only my coworker and I work in our models. We do not send off to anyone and have our own templates we revised that we had from prior life that we brought over. My boss is older and barely knows how to print a PDF so he can give two shits about how pretty a model looks as long as the numbers are right and never works in one.

Our models are extensive but not too complex. Most people just like to swing their dicks at how good and pretty their models are with their crazy formulas that usually not even needed or my most hated with a passion, cell naming.

Nov 24, 2021 - 5:11pm

Never understood people who get a hard on for overly complex formulas. All you're doing is adding in greater likelihood of errors in the formula, and it makes it much harder for other users to quickly audit. I came across a rent roll formula before with 17 embedded IF functions, at that stage you just have to hope the author got it right.

  • VP in RE - Other
Nov 25, 2021 - 11:44am

That's because 21 years olds think that is one aspect they can control and you can prove you are better than your competition as if that is going to be the saving grace against nepotism or other cultural barriers in hiring. It might matter but not as much as most people think. At my current shop, the modeling is done by people in Asia who we outsource it to lol. My job is pretty much to review their work and despite me trying to find errors, they almost always crush it as they have been doing it for a very long time and are very good and we train them every step of the way so they are a well oiled machine now. Timing works too given the time difference. When I go to sleep, they are working through the night and the completed work will be on the top of my inbox when I wake up in the morning. 

Nov 24, 2021 - 5:16pm

Spend 1/3rd of my week modelling is my guess. Most deals I use an old model from the most relevant deal. On deals where I don't have a suitable model for it I'll build a new one from scratch to sense check it. This should take no more than ~2 hours, can add in the additional complexity if it looks like it stacks up at that point. More complex models may add greater levels of detail but they wont change whether a deal stacks or not.

Nov 24, 2021 - 6:19pm

Haven't built one from scratch other than during interviews where flexing was required. Reviewing models to corroborate the reasonableness of assumptions in the context of broader industry/company/transaction level thesis is a more critical skill than having the technical skills to build one. I wouldn't make a career out of modelling as is not much of a runway (apologies for the pun).

  • 1
Most Helpful
Nov 24, 2021 - 6:24pm

At my firm, associates/analysts work on pre-built models, it takes special permissions (sorta lol) to change and add-on to the models (which are super complex in fairness). This is not uncommon (as others have noted above) at a lot of firms. It's not just to save time for the associate on the front end, it saves TONS of time for further up the chain reviewers, risk officers, and top mngt when reviewing. 

I do a fair amount of "from scratch" modeling for firm level portfolio type effects, and for modeling unique scenarios, and other random stuff as needed. This is unique to my role and not what's expected of the associates. So, in some ironic reality... you may do more custom, new models the more senior you get (especially if you get involved in creation of funds, evaluating new strategies, etc.... like stuff that no prior model exists to handle).

Thus... the modeling paradox.... why must you know it so well and literally face modeling tests (yes our firm does this too when its an expectation of role), only to be handled "pre-built" models?????? This is corny, but true..... if you don't know how to model, you can't evaluate a model, judge the reasonableness of assumptions and results, do effect error checks, and even spot others bullshit (or outright fuckups). So, it just is what is. 

  • Analyst 2 in IB - Cov
Nov 29, 2021 - 11:53pm

Not sure if you'd know this, but do you (or anyone else in this thread) have a sense for what the modeling is like in a FoFs / PE secondaries shop? Would assume it's much less complex and/or less frequent, especially once you reach VP or principal but maybe the modeling paradox you mentioned is more common.

Nov 30, 2021 - 11:05am

For two years I was a consulting for a private equity firm launching what could basically be described as a "Fund of Funds" (had mix of private offerings and public REITs), they actually did buy (or really should say... attempted to buy, as were unsuccessful most of the time) stuff as "secondaries" but this was not yet what it has become today.

The modeling was a lot of classic portfolio modeling... like return calculations, variances, holding period returns, efficient frontiers, etc. Very classic investment/finance stuff (really a FoF is not a real estate deal in any classic sense). There were also all sorts of models on valuation (this is where I consulting) of the fund and making NAV and true NAV estimates for the funds they purchased. Those were not "complex" from a modeling standpoint (like nothing like a waterfall distribution model or anything, fees were straight % AUM, didn't take a finance major to do that one...). In buying funds, the FoF was really a "price taker" so to be honest, they did little (or could do little) custom models as you couldn't really forward forecast those returns much anyway.

The complex models were for the fund and the firm itself, those were fun, I drafted several from scratch for a few groups. Very much in that same vein of the "seniors do the complex modeling" of new stuff. Still, the actual level of "excel" skills to do these were low. I mean, if you can do some basic macros, IF statements, and all the general stuff, you know what you needed. What could be "difficult" is understanding the mechanics of the fund, that is not something I've ever seen "taught" anywhere... you just need to figure what needed to occur.

This is part of the point.... once you really "know" how to model... you should be able to model anything so long as you understand the deal/fund and can make reasonable assumptions where needed. As for today's secondary buying platforms... I'd guess they do a lot more valuation work on the individual fund assets they are trying to buy, as I'd guess they can get more data to work with, but I may be overestimating that truth. 

Nov 25, 2021 - 5:43am

Do quite a bit of modelling from scratch, we have some templates but when it comes down to getting creative with deals and making changes, I am a lot more re-active and confident when it comes to shifting around the cogs inside of the machine if I am the one who put it together.

The models are only as good as the inputs put into them and a back of the napkin can do the same job as a 30 tab monster...but sure we need to keep ourselves relevant by drowning you in detail.

  • Analyst 1 in IB - Cov
Nov 29, 2021 - 10:43pm

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  • Analyst 1 in IB - Cov
Nov 30, 2021 - 12:00am

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