Investment Banking to Private Equity - 6 Things You Should Know

I Invest's picture
Rank: Senior Gorilla | 868

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 (43)

Feb 15, 2016

+1 SB! Thank you for sharing

Feb 16, 2016

Good one, thanks!

Feb 16, 2016

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)

Feb 17, 2016


Feb 17, 2016

Thoughtful analysis, congrats !

Feb 18, 2016

Thanks a lot for sharing

Feb 18, 2016

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
  •  Feb 19, 2016

"Negotiated an NDA"

Feb 19, 2016

"Negotiated an NDA"

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

Feb 20, 2016

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.

Feb 19, 2016

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?

Feb 20, 2016

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.

Feb 19, 2016

Great thread, appreciate you sharing!

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

Feb 19, 2016

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?

Dec 26, 2016

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?

Dec 26, 2016
Dec 26, 2016

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

  •  Dec 26, 2016

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

  •  Dec 26, 2016

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.

  •  Dec 26, 2016

Move out of Canada

Dec 26, 2016

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.

Dec 26, 2016

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

Dec 26, 2016

and with that comes the 90+ hour weeks

Dec 26, 2016

true that

Dec 26, 2016

Thanks guys. The search is on!

Dec 26, 2016


Dec 26, 2016

Relevant skills:

1) Ability to take shit from people higher up the food chain

2) Ability to stay awake for a week if that's what it takes to close a deal

Distant 3) Ability to build DCF and lbo models

    • 1
Dec 26, 2016

this is the sad truth

happy to give advice; no asking for referrals please

Sep 11, 2018

I regret going to PE too early, and leaving IBD too early.
I have a weaker foundation in modeling and a weaker rolodex than I'd like.

Aug 4, 2019
Sep 17, 2019