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.