12/26/16

1. Why not just try to start with a PE firm?

There are PE firms that hire juniors out of undergrad. However, this 99.99% of the time is in a sub-associate role. In other words, you would be junior to me. I'm only pointing this out because I don't want you to think that a person out of undergrad is getting hired to function in the same capacity that I do. There is a tremendous amount of autonomy I have as a PE associate that I didn't have as a IB analyst. Most people (even the top performers) out of undergrad need constant guidance and instruction. Out of undergrad, no matter how genius you are, you have never done a real live transaction, negotiated an NDA, been the sole person responsible for a deal model, diligenced a management team who is much older than you, managed various third parties (lawyers, consultants, accountants, etc.)

You need deal experience to have any idea on how to go about approaching these things in an intelligent manner. This is what a PE associate does all from the buyers perspective. A person being hired right from undergrad to Blackstone isn't functioning in this capacity. They will be an analyst to the associate being groomed to function in this capacity. The reasons stated above is why most PE shops recruit to hire IB analysts after the 2-3 year IB period. When I started PE, I had 3 years of BB IB deal experience. I had a very clear understanding day 1 of my new job on how an M&A process and debt financing works. I also was well acquainted with modeling and how to be scrappy with digging up valuable information. I also had participated in diligence sessions before from the IB analyst side. With that being said, I can't stress how different the buy-side is and how much I've learned so far. My skillset was very transferable, but sitting in the buyers seat is completely different.

2. Why not try to become an associate at the IB you're at?

There are a boatload of reasons why people leave IB. It's a tough gig as a junior. Committing to do the A to A thing is basically accepting 6.5 years of a rough lifestyle. I honestly think most people recruit for buy-side because most people recruit for buy-side. However, people do leave the IB role for other opportunities (b-school, corp dev., etc.). The biggest attraction to leveraging a junior IB role for 2-3 years is that you're essentially placing yourself on a platform where you can exit into almost any industry. There might not be another time in your career where you can essentially exit a job and do almost anything. I spent 3 years at a top group at a BB. I honestly felt like I could have recruited for almost any role I desired (PE, HF, VC, Startup, F500, etc.). Now that I've decided on PE, I don't necessarily feel that way. For example, if you move to a distressed hedge fund, you're a distressed hedge fund guy. You might have a hard time recruiting for an equities event driven fund. As an IB analyst, you could recruit for both easily.

3. Are PE firms that much more competitive to get into where you are basically forced to do IB first?

PE recruiting is 10x more competitive than IB recruiting. There are drastically fewer spots in PE than in IB. The cycles is which firms recruit isn't as structured. Although there is a PE wave of recruiting each year, there are tons of PE shops who don't recruit with the initial wave. PE networking is also harder than IB networking.

4. Do you move to PE because pay is ultimately better as you further your career?

Further in your career, especially at a successful performing fund (stress on word successful), you should make more money as a Partner at a PE firm versus being an MD in banking. It's hard to beat meaningful carry at a successful performing fund. As a junior, the biggest misconception on this forum and across the street is that pay is better at the junior level. Yes, if you attain an Associate role at Apollo you will make bank relative to staying on your IB track. However, in most cases, I would say the pay is very comparable, especially with the increase in IB pay across the street over the last year or so. The difference for most people will be nickels and dimes (I don't mean 5 cents and 10 cents literally, talking thousands), which after tax isn't particularly meaningful at all. I'm a first year PE associate and my best friend is a first year IB associate(A to A promote). I'm willing to bet all in the difference between our pay won't even be worth a discussion. Again, I think this is the norm. However, yes, at a mega PE shop (e.g. Apollo, BX, etc.) I would expect the pay difference to be more meaningful at the junior level.

5. Why do some go into IB with the intent of moving over to PE?

The street and recruiting process are structured in this manner. Headhunters sift through IB analysts (primarily) and work with PE shops to hire IB analysts after their 2-3 year program. This question is almost like asking "Why do people do internships to get into IB?" It's simply how the system works at the present moment. The primary avenue to PE is IB.

6. Do you move to PE because work hours are better?

In most cases, all my friends have better hours. The exception is my 1-2 colleagues who went to the mega shops. I would say the mega shop colleagues actually have worse hours than IB! Let me be clear by what "better" means though. This forum tends to have a misconception of the "better hours" theme. I still work hard. It's a job in high finance. I believe the better hours really are a result of more autonomy and my work not being client driven. I have more control over the timing so I can manage life better. No more of the surprise 8pm deck that needs to get done for a client by tomorrow afternoon to discuss the mega deal that will never happen.

Mod Note (Andy): This week we're reposting the top content from 2016, this one ranks #47 with 25 silver bananas.

Comments (35)

2/15/16

+1 SB! Thank you for sharing

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2/16/16
2/16/16

Saw this comment in the original thread and it was a damn good primer for why IB to PE route as spoken by someone who made that transition (the poster @I Invest)

2/17/16
2/17/16

Thoughtful analysis, congrats !

2/18/16
2/18/16

I esp. like the point about the buy side tasks, and would welcome more detail:

"done a real live transaction, negotiated an NDA, been the sole person responsible for a deal model, diligenced a management team who is much older than you, managed various third parties (lawyers, consultants, accountants, etc.)"

  • Anonymous Monkey
  •  2/19/16

"Negotiated an NDA"

2/19/16
undefined:

"Negotiated an NDA"

Great post, but this is a questionable comment. Did you mean something else?

2/20/16
anonguytoibd:

undefined:"Negotiated an NDA"

Great post, but this is a questionable comment. Did you mean something else?

I think the comment could be interpreted to mean that real world experience is much more valuable than hypothetical or academic experience. In regards to negotiating an NDA, although it is much more simple/standard, it really does give an analyst, who has little experience, the opportunity to understand the process.

Negotiating whether the CIM can be shared with affiliates, if private equity funds can hire the management team for a separate deal (very rare and extremely hypothetical), the ability to trade in other securities (equity or debt), restricting the ability to contact potential financing sources, etc., are all somewhat important parts to the deal process that enables the analysts to increase their understanding and to see things from the perspective of different constituents. Working with Company's counsel to negotiate this aspect is extremely valuable, but is still viewed as administrative and is underrated.

Furthermore, a fair amount of MM PE funds require their associates to negotiate NDAs; it's a basic skill that is expected at a certain level... particularly if you work at operationally or distressed/turnaround focused shops.

Father to Junior EightAceTres, the projected top summer analyst in Gleacher's 2034 Investment Banking program.

2/20/16

It really is this, even as something as mundane as an NDA for example. Just the stupid stuff that you know to flag and or negotiate because you've seen it before and know it's important for your fund. Someone fresh out of college (or even law school) isn't going to know what to look for (a fresh law school grad may know the legal but not the business points to consider). And when you're the PE associate with signatory authority even on something as simple as an NDA, you need to know what to look for. 99% of the time an NDA is never going to come up, but it can and you just want to have a base of knowledge to make those decisions so you're not that guy who fucked up, especially in MM funds where you don't want to push an NDA up and incur legal fees. Maybe MF's do that or have in-house guys, but we don't.

Due diligence is a gigantic part of a PE transaction and there will literally (and I don't misuse that term) be thousands of pages of DD. An associate(s)/lower VP and counsel will be the people who review all of that in detail and it's very useful to have working knowledge of at least the terms if not the concepts to analyze it, on your first deal. They better be able to understand something simple in the DD docs like the exec's comp's packages and transferable liabilities. The PE associate may not be responsible for the reps and warranties legalese in other DD acq contracts but they better understand the business points in those sections and they really need to know the business points prior to that in the docs. There are dozens, if not hundreds, of others things to consider. I always joke that I'm about 90% of a lawyer because over nearly 20 years I've been subjected to so much law (hate reps & w's though...)

PE isn't rocket science by any means but there's a ton of knowledge and experience that goes into it and it would be really tough to do that without prior experience, be that a basis in IB, law, consulting, Big 4, or just having it done to you as an entrepreneur. But as a fresh grad regardless of intelligence and studying, it would be impossible to be a effective PE associate.

2/21/16

So I'm assuming you aren't a fan of PE funds that hire analysts?

2/21/16

I wouldn't say not a fan, I'm just not sure why you'd hire a fresh college grad into PE. This is primarily based on my personal experience in lower MM to MM but the places I've worked run very lean and we have limited resources. I know this is different at the really large funds (and they seem to be the ones hiring recent grads as analysts) but for us and everyone I've talked to at firms in my general size, we don't have the time or energy to train people or hold hands. The OP's line about autonomy is very true and it's something I've had nearly every associate tell me over the past 15 years as one of the big differences between their IB analyst stints and being a PE associate. You're just expected to be able to do from day one, and on your own. Sure you learn a ton but that base of knowledge you garner in IB (or consulting) is hugely valuable. And that would be nearly impossible as a fresh college grad and I'm not sure what the analysts role would be.

From an HR perspective IB's are the greatest thing for PE. You have these giant companies with nearly infinite resources (at least infinite compared to mine) that put these new grads into incredible training programs, grind their asses for 2-3 years and then kick them to the curb. These analysts then trip over themselves to come work for me for about the same amount of money, fully trained and ready to hit the ground running, and because I'm "prestigious" I get to pick the best of them. I just don't know why you'd take on a kid right out of school and not simply take advantage of them coming out of an IB (or consulting) program. I know it's different at BX or KKR but I'm not sure why, after all of these years of running with associates that came from IB's, you'd want to start bringing on a limited number of analysts and have to bring them up to speed.

2/25/16

You work for a fund that IB analysts would "trip over themselves to come work for" and your fund doesn't have an in-house counsel????

Kid who wrote the original post makes some good points, but should learn to tone it down a little. The part about "negotiating an NDA" sounds particularly silly - probably was still high from pushing back on a few points for the first time in his career...

2/25/16

Yes, I receive inquiries very regularly about working for us from top notch candidates. And no, I'm not going to pay someone a few hundred thousand a year as in-house counsel to review stupid docs that anyone with half a brain should be able to negotiate themselves when commons sense dictates and fund docs state that we have to use outside counsel for deals anyway. I can personally negotiate about 75-85% of legal issues anyway and when I can't I have 3 lawyers on my phone's favorite tab.

2/25/16
chaser:

You work for a fund that IB analysts would "trip over themselves to come work for" and your fund doesn't have an in-house counsel????

Kid who wrote the original post makes some good points, but should learn to tone it down a little. The part about "negotiating an NDA" sounds particularly silly - probably was still high from pushing back on a few points for the first time in his career...

I'm going to go out on a limb and call troll. If not, you're in for a rude awakening when buyside recruiting comes around.

Most funds don't have in-house counsel. Yes, MFs and large MM firms do, but those are an exception, not the rule. As @dingdong08 pointed out, it's a complete waste of time and money.

As previously discussed, NDAs rarely come into play... so if I'm executing roughly 250 NDAs a year and it takes roughly an hour of counsel's time (assume freshly minted Skadden Associate @ ~$300 an hour) for each and that gets me a total of $75k in expenses that could easily be taken care of if I spread the work around 5 VP/Associates.

Father to Junior EightAceTres, the projected top summer analyst in Gleacher's 2034 Investment Banking program.

2/25/16

Man, you need to take a chill pill, especially when talking about things you clearly don't know much about. Think about it, what is it that you as an associate actually do (I'm assuming from your title that you are an associate) - you think your models and your memos are indispensable or more valuable than what the legal guys provide? I'd tell you, from an economic benefit perspective, outsourcing the modeling / memo drafting (or at least the modeling to a 2nd tier buy side advisor) could make more sense than outsourcing the legal advice. It's just the way the supply chain in the industry has been set up differently and nobody could be bothered to change it.

In-house counsels are not there just to review NDAs, though that's a small part of what they have to do. They are responsible for many other things that are both deal and non deal-related - help review deal docs, compliance, dealing with GP-related matters, fundraising etc. Third-party lawyers are probably good enough for negotiating commercial / regulatory issues on a deal, but a good in-house counsel can sometimes provide advice / guidance on specific fund / GP matters that can have an impact on documents as well.

Of course depends on the GP's needs, but unless there are many people with solid legal background among the partners / deal team, I'd say normally having a counsel is not a waste of time / money.

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2/19/16

It seems you liked having the IB experience going into PE but also talked about the better work-life balance and pay in PE, along with a lot more competition when going into it from IB. So, which side would you argue for in taking a mega PE analyst or BB IB analyst role?

2/20/16
SuitUp97:

It seems you liked having the IB experience going into PE but also talked about the better work-life balance and pay in PE, along with a lot more competition when going into it from IB. So, which side would you argue for in taking a mega PE analyst or BB IB analyst role?

Also interested in your opinion on this.

2/19/16

Great thread, appreciate you sharing!

Any comments on Corp dev at a top Fortune to PE? Any visibility into this switch?

2/19/16

I have the same question as someone stated, for a PE career, is it better to be an analyst at a mega-fund or an analyst at a BB IB?

12/26/16

Thanks for the post. Can you comment on recruiting as an analyst in LevFin vs. m&a?

As a levfin guy, I'm comfortable with the buyout financing process, the modeling, the business analysis and the credit/legal side. However, I don't have the pure m&a experience - how much of a disadvantage do you think this is?

Can the m&a/valuation side be learned on the fly or do you not tend to see too many levfin bankers in PE?

12/26/16

"For I am a sinner in the hands of an angry God. Bloody Mary full of vodka, blessed are you among cocktails. Pray for me now and at the hour of my death, which I hope is soon. Amen."

12/26/16

PE firms ussually have funds tied in lof a mid-to-long term which allows them to buy long term assets such are distressed tranches of CLO/CLOs

a lot of these distreseed tranches are not in default but have been depressed price wise and are good buys if (and only if) held to maturity.

the fact that PE firms have capital tied in for a long term allows them to profit from these "mispricing". some thing that is difficuult for firm who have to mark-to-market

obviously, CDO of ABS are actually suffering "real" defaults while CLOs (Euro) are not suffering defualt just depresed market price

any move in the current market especially if you think that you are pretty secure where you are

with your structuring experience, you may want to consider moving to a role which allows you to learn other biits to reduce over specialisation to CLO

there are losts of PE firm trying to move into this market but are struggling to raise funds

  •  12/26/16

You've worked in ibanking for two years and don't know the answers to those questions? Are you some kind of fucking retard?

  •  12/26/16

he's just some freshman that can't tell his head from his ass and trying to pose as someone actually in the industry.

It's probably a reincarnation of Yokonomo. God, he was a fucking toolshed, too.

  •  12/26/16
12/26/16

i'll try to answer some...

when? start mid-way into your 2nd year at the LATEST.

How/WHERE? recruiters, alumni netowrk and cold-emailing, post your resuem on this site

comp? $65 - $100k base, same bonus range

sometimes junior guys called "analysts", most places call their junior guys "associates"

hour? anywhere from 55hr - 90hrs a week

after 2 yrs in PE? most typical is B-school or go work for portfolio company or anything and everything. hedge funds, start own business, etc.

12/26/16

the above range for comp seems on the low end. Top tier shops should pay at least 250K total comp.

12/26/16

and with that comes the 90+ hour weeks

12/26/16

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