Is it dumb to exit to LMM PE rather than starting in bigger (MF/UMM) opportunities first?
Have read some other similar threads, but would love to get some thoughts. I'm currently an analyst at a BB in a good group that places ok into MFs and UMM funds. Although my original plan was to pursue opportunities at bigger funds, I just received an offer from a LMM PE shop (~$500mm fund / $2bn AUM) that I like for a variety of reasons (smart people, top quartile returns, interesting niche, WLB), but also because my family and fiancé live where it's located back home. The only part that I'm hesitating on is that if I ever wanted to try working at a larger fund, this would likely be my only opportunity to do so, and that it's significantly easier to move down in size than up. Literally everything about the LMM shop checks my box, I'm just fearful of regretting the decision later by jumping the gun before feeling out all options.
bump
Is 500mm not MM?
My 2 cents: Take the LMM job. $500MM is big enough to be respectable and learning from smart investors with a strong track record (as your fund seems to have) is really important at the associate level. The MF name might buy you some optionality down the line but considering your family it sounds like you’ve already ended up at a destination type place. I also wouldn’t underestimate the regional brand value if you want to switch firms but stay in the area long term. These smaller funds all tend to know each other and often would trust someone they know than take a risk on a MF guy.
What's a typical fund size range for LMM
<1b fund is typically lmm
Sounds like it ticks all the boxes. Do you like the people at the LMM fund?
Yeah I like them a lot and have fit in well every time I’ve visited / interviewed with the office.
As someone who took a LMM offer over some more well known MM/ UMM funds, I think I could give some good insight.
I was lucky that I liked my firm, but I still regret it. I was hoping I would work less and I was frankly burnt out from my banking stint. There was no VP slot for me so I had to go out recruiting again. Unfortunately, you’re at a disadvantage to people from well known shops. You can always get an MBA but it’s increasingly competitive and if you have your eyes set on HSW, then you’ll be competing against other PE kids with more prestigious names.
If you see a LT path then it might be worth taking that chance, but as a young professional having that brand name is probably more important if you are job hopping.
That's a great perspective I appreciate that a lot. Most of the VP hires have come internally from the associate pipeline as they don't require MBAs but encourage it if you want to leave to do it. It would still require a lot of effort to make VP (as it would anywhere of course), but it's certainly a shop where people have and can stay and move up LT. But it is worth considering, like you said, the chance I don’t get to move up and am less marketable after that experience potentially.
It’s dumb to work a job you don’t like to just continue to have further optionality and exits. At a certain point, you are going to need to close doors and make a choice, if you keep worrying about keeping all options open you will end up 30 years old having never taking a job you really liked and unsure how to begin to enter a field/ fund that you really wish to be a part of.
It will be this + potentially having a much poorer relationship with your fiance and family. I'm sure its going to be much tougher keeping close ties with them when you're in another part of the country working crazy hours. There comes a certain point when you need to step off the pre-determined path of school -> BB IB -> MF/UMM PE if you want to have your own life. I would really think deeply about what you would want your life to look like down the road (next ~5-10 years) and if this job is going to help you get there. Are you willing to (potentially) risk those relationships for the sake of more earning power or perceived status (nobody outside of finance is going to know jack shit about whether you work for MF or LMM). You're still in PE after all at the LMM, you are going to be getting paid more than 95% of people out there with future earning potential in the millions if you are able to stick around to Partner.
I'm biased, I went down the LMM IB -> LMM PE path in a Tier2 city but am completely happy with me decision. Doing this as opposed to gunning for the most prestigious firm has allowed me to structure a life thats been much more enjoyable (time to workout regularly, close to family, better WLB) while still making more money than 99% of my friends at this age who are not in high finance at bigger firms.
What's the fund and AUM size at your LMM? Thanks.
Really appreciate posts like these that do not glorify MF or bust. Currently at a MF myself and while I enjoy the role I know long-term I will move to a LMM/MM fund for the better WLB
are you a first year or second year analyst? If it’s the former I might be screwed for PE recruiting....lol
I'll give you my two cents. Not worth it. Chose LMM back in the day instead of keeping my head down and continuing to recruit for UMM funds, thinking similar things - better lifestyle, path to promotion, thought the team was smart, team looked good on paper, thought $500mm fund was a respectable size.
Problem is that over time, you realize a couple things: (a) team probably is actually not as smart as you think. They might look good on paper, might have good backgrounds, might say "raised our fund in record time", etc. but at the end of the day, the market is flooded with capital today. Why did you only raise $500mm? There's always a ton of "reasons", but at the end of the day, the smartest people tend to raise the most money and work at the places where the money is the best. Might not be something you're ready to hear right now, but over time, that's what you'll realize. (b) promotion path was more challenging than they made it seem. when you're a small fund, there aren't actually that many spots for VPs and partners going forward. Maybe you'll get that spot, but it's not guaranteed the way you might think right now. (c) there's no such thing as chill PE life. Yes, your life is maybe better than your peers at other funds b/c you work on live deals less frequently. But when you're on a deal, you're going to be cranking those same midnight hours. Is this really worth getting paid 30-50% less than your peers at bigger funds? (d) will you actually feel good about your comp track here? Smaller funds pay less. That's just how it is. Spread the fees across fewer heads, yes, but ultimately fees/head scales a lot faster at bigger funds. You'll never get paid as much as your $5bn fund friends, especially as a VP and partner. VP earnings could be as much as a 50% haircut to peers at big funds. That's tough to swallow for some. (e) your career optionality is much more limited. talent flows downmarket. if you're starting at the smallest funds, you've got a lot less leeway in the future. Much easier to start big and move down over time if you want to.
But hey, it's your choice. There are benefits - but just go in with your eyes wide open.
Thanks for your perspective. Could you speak more about once you realized why you didn't like your LMM gig, how you responded and exited to your next opportunity? And were all of the things you mentioned in your post that were against the LMM fund coming from your own experience, or is there anything else from your own time there that you didn't like?
What are comps like at LMM fund?
I will give the opposite perspective to the above post. I joined an LMM firm after doing some diligence on the firm, track record, and culture. Our fund is in the ~$500M range and our latest fund is already a 3x fund with a few more exits coming down the pipe.
With regards to fundraising and target investments, UMM buyout and LMM growth / buyout are two different strategies. The daily work, skillset, and value creation are different. In UMM you are looking for edges in banked processes. You are working with third party diligence providers to understand the market, business model and financial profile, and working with lenders to optimize the capital structure. In LMM you are developing theses and relationships with management teams. Then, you are proactively identifying opportunities that may be under managed or are early in the market lifecycle. You are personally doing most of the market work and thesis development, and will have to be much more deliberate in understanding the growth opportunity since value creation is not from financial engineering but rather growth. The best LMM firms don’t just choose to go raise more money because their strategy does not scale well to compete against UMM firms in banked processes.
Comp wise, there is undoubtedly a discount to MF, but comp is still strong with good progression. For context, I’m at about $350K in my 4th year with carry on top of that - less than a MF but still more than enough, especially given the more intellectually stimulating work (in my opinion) and better culture. Carry varies by fund, but if you find a fund that is generous / merit-based in distributing economics, there is plenty of upside. For context, one of our ~40 yr old partners has over $25M carry dollars at work just in the current fund. He has drove extremely strong returns in our last fund and was rewarded with economics. Plus, if you’re going to burn out at a MF but enjoy LMM, you won’t even see that higher carry comp from the MF if you don’t make it through the grind.
Finally, culture and progression wise - this is highly variable across funds, just as it is across groups in MFs or UMMs. Do your diligence. Talk to former employees, ask good questions during interviews and get your answers. I did my homework and found a great culture - I have open access to all of our partners, am a vocal contributor at board meetings, and hold personal relationships with all of our executives. Hours wise, I’m probably at 40-60 in normal weeks and 60-80 on crunch weeks… not bad. I also have full flexibility over vacations, working remotely, and taking an evening to do something with friends as long as I get my work done in time. This is not the case at all LMMs, but I doubt you’ll find any MFs or UMMs that have that. Ultimately, this business is a meritocracy. You’ll find yourself wanting to put more time in to execute your tasks better, and that will push you toward promotions. Do your homework on promotions and whether the firm promotes from within. Mine has a track record of associates climbing all the way into the partnership, and now I’m on that track as well.
I think the main question is, do you like the UMM strategy or the LMM strategy more, and which is sustainable for you to build a career in. If the answer is LMM (which it is for me), then that is a very solid move directly out of IB.
Hey OP here. Would you be willing to PM me?
Not entirely relevant but how do you move up to partner from assosiate at a fund that doesn't raise bigger funds and grow aum?
If people are promoted to partner at a fund like that doesn't that mean the founders are essentially paying the newly promoted people with their own carry?
They do need to slowly or quickly raise more money. So you go from raising a $300 to a $450 to a $550 to a $600mm fund. That's kind of the slow and steady progression. Of course, as you can tell, the fees don't get THAT much bigger with this, which is why there are some complications around how many ppl ultimately can be promoted at a fund like this. On the other hand, if you hear that their aspiration is to grow their AUM quickly (and you feel like they can actually do that...), then there is probably more shots up top.
We do raise bigger funds and grow AUM, we just target our fundraising to a certain implied dollars per principal, or # of deals per principal per fund. However, our $ / deal stays roughly the same since that's what drives the strategy. Therefore, as people start showing potential, they move up the stack and contribute as principals in larger funds. At that point, it becomes put up or get put out
Hey I'll respond to some of this too. At the end of the day, all of this varies by fund. It's really really hard to know before you jump in. Anon here and I had different experiences. I don't think either of our experiences is representative completely of all LMM funds. My LMM fund was focused on buyouts of 10M-50M EBITDA businesses. These were largely banked processes where you could find an "edge"...which frankly the small fund had few of, if you really think critically. My place was still very hierarchical. Maybe Anon's experience was different - sounds like his fund had more of a growth bent to it and he's done well for himself, so wouldn't I challenge him on his experiences. On comp, most LMM funds are comping associates like $200-240K, with some progression. VP comp at like $300-350K. That's a haircut to larger funds. But look, there's a ton of variation in experiences here between LMM funds, the same way there is a lot of variation between UMM places. I wouldn't hold out hope that there are some good diamonds in the LMM space.
What LMM fund size are you assuming based on your comp figure?
I’m the poster above and I completely agree here, I just wanted to share a different perspective. there is a ton of variation across teams in the LMM. It is possible to have a great experience or a terrible experience, all depends on the firm and culture. With the LMM it is going to be important to try to diligence the role a little bit. Make sure you talk to the current associates and read between the lines a bit on their attitude, talk to the partners, Try to reach out to past associates, look at the value creation strategy and see if it interests you, ask about recent exits, etc (I’d wait to do all this after you get the offer or are close to it). if it checks out and it’s what you’re interested in, I think it’s well worth the gamble. If you see red flags, don’t take it
To be fair, I think there is a ton of variation in MF PE as well. I frankly have a pretty decent lifestyle for IB / PE and I'm at one of the firms that people think you get worked like crazy. I really would evaluate each opportunity as its own rather than making broad generalizations because of WSO.
What are some of the common red flags when evaluating a fund?
Have heard one too many LMM/MM horror stories from my friends that I'd rather start off at an established MF/UMM if given the choice.
Currently at a UMM making probably 1.5x the pay of my LMM friends while working perhaps ~5 hours more on average and I have the optionality to go to a lot of solid MM should there not be a partner track available where I currently work at
Can you speak on some of the bad stories you’ve heard?
Comp figures assuming fund with $400-500M fund, say with team of 10 on the investment team? Pretty typical. You'd be hard pressed to find someone getting paid more when most UMM funds are paying associates $250-300K and then stepping it up by $25K per year. Obviously some variation by fund, but you're not going to pay someone more than $250K if you're a firm that's got a fund 10x smaller. Lack of AUM scale doesn't work that way.
And to the point before this around horror stories -> yes it's really not worth it to go risk it in LMM when you can set your career off better in UMM or established big fund. You know you'll get a B+ experience from deal experience, brand name, etc. Plus, you never know whether you decide to stay in PE, want to try growth, do HF, go downmarket, etc. Always easier to move with a better name on the resume rather than some small LMM fund that nobody cares about. Career optionality always helps. You might think when you're 24 that you know what you want, but trust me, that can change pretty quickly, and you don't want to be stuck somewhere you don't want to be.
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