Is PE making us... stupider?!

Clickbait title intentional (sorry). I worked in consulting before PE and am of the camp that found it intellectually stimulating and engaging. I mention that because it provides a different foil against which I can compare PE (as opposed to banking, like most in the forum).

In contrast, I find this job to be focused on procedural items - even the modeling - that I feel like my ability to think critically is atrophying. In my mind, most of these deals are about ticking a nearly endless list of boxes or running through myriad scenarios, and not so much about deep critical thought.

Does this resonate with you, or do you see it differently? If you respond, please indicate the extent to which you think your fund's strategy informs your answer.

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Comments (39)

  • Associate 1 in IB - Cov
Jul 6, 2021 - 1:11pm

Consulting bills by the hour so there is a bias towards endless discussions/slides of ideas that will never get implemented. It's always a bit of a culture shock when a consultant switches to a job that prioritizes results. 

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Jul 7, 2021 - 6:09pm

mbb does not bill by the hour lol it's a flat fee for X weeks of work with (ideally) a well-defined scope

if there's endless discussion of ideas without a resolution it's usually bc the client has no idea what they want. there's going to be a final recommendation regardless at the end of the project - at that point, it's up to them where they want to go with it

prioritize results, but who cares if that result is good or bad right? you get 5+ years before anyone realizes your incompetency lol

Jul 8, 2021 - 7:17pm

With regards to the '5+ years' comment

I believe the incompetence from consultants is actually immediately clear to most junior folks. However, this almost unspoken (unless to other junior professionals) because consultants are hired for a different purpose.

As many of you are aware, the consultants are brought in to validate an existing idea. In almost every instance I have worked with McKinsey (the experience may differ with another firm), the analysis was vastly incorrect (whether it's opportunity sizing or operational improvement) but the mistakes overshadowed by a loud and glossy presentation. Even while working with them on operational initiatives they had proved themselves to be utterly useless, unless the task involves doing a lot of obnoxious talking during board presentations.

I have had a very distasteful experience when working with consultants (from a work quality and personality standpoint). They present themselves as extremely confident but they have provided almost no value for the ~$100K weeks they charge. However this is just a part of working in private equity and you will need to work with consultants very often, whether on new deals or portcos. Just want to be set expectations for junior folks in PE that will scratch their heads thinking 'How can someone be this incompetent' during their first encounter with an MBB firm on the buyside.

I understand this will ruffle some feathers. I welcome any and all feedback if anyone has a different view, and otherwise welcome the monkey shit from the shy wallflowers in the room. Curious to hear your thoughts.

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Jul 8, 2021 - 9:24pm

i mean, i dont really know what to say to this besides, if mck is so useless, why does your firm ever engage them LOL either youre exaggerating mck's incompetence or the partners you work for are dumping cash into a furnace. basically - either your partners are stupid or mck adds more value than you think you know. if pe is too "process-oriented" to ditch useless consultants, isnt that a pretty damning indictment of the industry? 

  • Associate 1 in IB - Cov
Jul 9, 2021 - 12:20am

Aren't you contradicting yourself though?  If they're validating something that was already thought of internally, but you're saying their analysis is vastly incorrect, wouldn't that mean your firm's analysis is also incorrect?

No dog in this fight - looking for clarification here.

  • Associate 2 in PE - LBOs
Jul 9, 2021 - 1:07am

From my own experience so YMMV. 

PE Firm: We think we should pursue this revenue opportunity for a portfolio company, from a preliminary view it'll be $50M per year based on X new leads and Y per lead if they achieve quota. This implies that we ultimately take 10% market share in this year if all goes towards the plan.

* Portfolio company underperforms and consultant is brought in to help restructure and identify opportunities *

Consultant: Ultimately provides a menu of opportunities, none of which are actionable except for the same previously identified by the PE firm. For the same opportunity runs a super high-level analysis based on a publicly available report that sizes the total market at $1B and assumes we will achieve 20% for qualitative reasons A, B and C. They have a senior person present this to the board so this is what the PE Partner is thinking in his head about the same opportunity.

When validating the analysis and actually pursuing the opportunity, we go through the Consultant's backups and find that most of the information is from Google searches and that the quantitative backup to their work is one XLS sheet, of which there is an error from not copying a formula correctly. PE junior team finds a way to reset expectations without throwing McKinsey under the bus. Throughout the engagement, McKinsey team annoys both the Company and PE junior team by prioritizing their own asks over all other workstreams on the project.

1-year later, PE firm has entered this market and outperformed their initial expectations and nowhere near what the McKinsey team had promised. McKinsey partner however continues to have a good relationship with the firm.

Jul 27, 2021 - 10:50am

The point isn't that they're actually brilliant, but because you have a "prestigious" entity validating that said opinion is the right opinion to have. It's social proofing for an idea which helps you sell it both inside and outside the organization.

Aug 7, 2021 - 4:11pm

That's exactly it. The only tactical point I wanted to add for prospective PE folks is that it can be a frustrating experience from the junior investment professional POV (i.e. being asked to build a model based on assumptions that McKinsey didn't even think through), so it's ideal to go in with the right expectations upfront. 

I don't mean to demean the consulting profession as a whole, but expected more thought to go into their work given the amount of 'trust' that senior PE folks put into their presentations. Even if there's some glaring mistake in the McKinsey work, we'll probably keep hiring them anyways, so it's kind of bound to happen.

Jul 27, 2021 - 10:48am

I'll validate that. The team I work with recently contracted a large consulting firm to do some operational analysis and it was a disaster, with a low level of due dilligence reflected. They did not look at our data in any granular level and merely applied historical industry Delta values to our KPIs.

  • 1
Aug 7, 2021 - 4:12pm

Yeah that's exactly what I wanted to foreshadow for the folks looking into PE from this forum. Most are aware that McKinsey is brought in to validate existing ideas but the quality of work makes life really crappy for a junior investment professional being told to use their assumptions as the basis for any deal scoping or operational work.

Jul 6, 2021 - 10:41pm

I get where you're coming from. I do enjoy the job generally, but PE is still very process-driven. Less about thinking creatively or solving new problems, more about checking the boxes and repeating the same sorts of analyses over and over. I don't think that my fund's strategy informs this answer very much, as my peers who work at different funds tend to feel similarly.

  • Associate 1 in PE - LBOs
Jul 7, 2021 - 12:26pm

Thanks, I think you've better articulated what I was referring to. I am feeling that without problem solving or creative solutioning, I am losing my ability to generally be sharp. At the same time, I realize I am becoming quite quick with the process-driven pieces. My fear is that, if I am not interested in a long-term career in PE, the atrophy of general "sharpness" will be a detriment long term. Do you have any thoughts? Any general reaction would be appreciated.

Jul 7, 2021 - 3:11pm

You're taking a very narrow view of private equity investing, try to think outside of your initial associate responsibilities. The underwriting is important but only ~3 months of a 5 year investment. Once you've assessed the opportunity and gone through the process bs required to actually make the investment, strategic planning becomes the focus of the job. Depending on the management team, you may need to really stay on top of the company so the your investment doesn't fall into a game of "catch-up".

Half my time this past year was dedicated to portfolio company management - liquidity planning through C19 uncertainty, analyzing new service verticals and geographies we should get in, buy vs build and assessing management's ability to execute, executive recruiting, etc. That's where you can really separate yourself. Any IB monkey can run an lbo model.

  • Associate 1 in PE - LBOs
Jul 7, 2021 - 8:51pm

I feel similarly. I worked at a more long-term private investment shop before switching to traditional LBO PE and found that to be extremely fascinating (spent a ton of time thinking about where to invest and how to win). This game (trad. PE) is very process-oriented and I'm left truly wondering if I'm becoming a better investor. I've been mitigating that by forcing myself into more high level conversations and spending time thinking about every single deal I'm exposed to, to the ~sometimes~ detriment of my immediate work product. I'm not sure if this is the best long-term strategy, but I'm hoping I'll build both the process skillset I need as well as the ability to think like an investor. This is definitely requiring more hours than it should; however.

  • Associate 3 in PE - Growth
Jul 7, 2021 - 11:27pm

My experience in LMM PE has been pretty different than what you are describing which seems to be a hallmark of UMM / MF buyout. I think the primary difference is that in LMM and in VC / growth equity, returns are driven by growth as opposed to financial engineering. This drives a strategy that is a lot less process oriented and a lot more market evolution / thesis oriented.

My fund is a sector-focused fund with pretty concentrated, often proprietary deals. Usually, we do thesis development in advance of deal sourcing and so there is a lot of problem solving, market thinking and thesis development work. We also have a number of former consultants on the team in both junior and senior positions so it helps that there's diversity of thought.

The job will inherently have more process, scenarios and disciplined diligence than consulting will because it's not a thought exercise for a client but rather a tangible investment decision that you have to own. However you may find more what you're looking for in the investing world but outside of UMM buyout.

  • Intern in IB - Gen
Jul 8, 2021 - 12:39am

This sounds like something I'm more interested in than UMM/MF PE. What do your hours/comp look like?

  • Associate 3 in PE - Growth
Jul 8, 2021 - 6:47am

Sorry don't use this app too much so mistakenly didn't reply to your comment but rather posted my answer below in reply to the OP

  • Associate 3 in PE - Growth
Jul 8, 2021 - 6:46am

Hours prob 40-60 on lighter weeks and then 60-80 on live deals (even more variable during COVID with some weeks lower some weeks higher). Smaller firms means more live deals, but on the flip side we don't chase as many broad auctions so live deals to closed deals conversion is high and maybe it's not much more live deal time than other firms. I've probably had 30-40% of my overall time on live deal sprints and closed 5 platforms and 5-7 add-ons over 3 years.

Comp started at ~$225K first year and then increased by ~$30K per year. Now senior associate and am at about ~$350K with carry. Honestly more money than I can spend and the time to actually do stuff with it.

Other big pro is culture and work dynamic. Genuinely like the people I work with which you can't say about most people in this industry. Plus there is a track record of the partnership promoting people who execute and spreading carry dollars to strong performers, which is a critical but underappreciated factor to look for in picking a long-term seat.

Jul 8, 2021 - 5:31pm

In vanilla LBO, the bigger the fund the more process focused you will be unless you're very senior.

Like another poster above pointed out, LMM gives you a lot more full circle responsibility because you simply can't afford to have as many people tackling a deal. This means you get a lot more exposure to work that requires deep critical thinking VS process/execution. 

  • 1
Jul 8, 2021 - 7:11pm

Yes, I find that this job is a lot more process-oriented than I believed it would be going in. In fact, I believe the process-oriented tasks overshadow any 'critical thinking' aspect. I came from banking and would say that it's slightly more engaging but probably not as open-ended as consulting work would be. I believe the ideal role would blend the critical thinking aspect with hands-on experience - to avoid pushing lofty ideas while maintaining a sense of purpose in your work

Jul 8, 2021 - 7:25pm

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