Leaving Megafund for Lower Middle Market - Am I Crazy?


Ex GS Banker; currently an associate at a megafund (90bn). Offer to join a new, 250m fund and gain some more well-rounded experience (plus, if the fund succeeds, the upside is pretty tantalizing). Am I shooting myself in the foot by leaving the comfort of a brand name?

Comments (29)

Jul 13, 2019 - 11:46am

If you like, want and crave comfort (and some stability), then the choice may be the wrong one. That said, remember these huge organizations are just that. Large organizations. And as you go higher and higher it becomes increasingly political and much more of a positioning game and/or easy to get stuck. You'll clip a nice check in the meanwhile due to aum.

If you are more entrepreneurial, want real upside, be more well rounded, creative etc, then leaving is probably the right thing to do.

Only you know your personal and professional situation and so only you can make the most informed decision. In many views, you probably can't go wrong either way. Try your best not to be scared (I and many others suffer from this and it has to do a lot with how we were raised and society). In short, play to win, rather than not to lose.

Good Luck.

I used to do Asia-Pacific PE (kind of like FoF). Now I do something else but happy to try and answer questions on that stuff.
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Jul 13, 2019 - 1:13pm

Realistically, the chance of an associate at a MF making it to MD / partner is probably around 5%. From my experience (and things might be different at your fund), firms that have large associate classes only retain about 30-40% of their associate class and then it's extremely hard to move up from there (especially making the step to MD / partner). Unlike in banking where there's always turnover even at the senior level, senior PE people tend only to leave when they retire (or are pushed out which does happen, but nowhere near at the same rate as in banking). Obviously, you get a huge benefit from the brand name when time comes to transition out which is obviously valuable.

Going to a start up fund, the biggest risk is that the fund isn't successful and is unable to raise a second fund. However, as a junior you'll get a lot more responsibility and generally speaking, a much faster path to promotion. From my experience, all of the people around me who have been super successful in PE so far all joined A fund that provided them with an upward path (either by luck or because it was growing) really early on. It's much much easier to stay on the partner track at a fund that has growth potential.

Anyway, the way I would look at it is that if you think PE is right for the long term for you, you'd have a significantly higher chance of making partner at the new fund, but the downside is that there's also a reasonable chance that it may not work. Up to you to decide whether the tradeoff is worth it. I know if I liked the guys at the new fund and they had a good background, I know I would jump on an opportunity like this.

Jul 16, 2019 - 5:58pm


A smaller firm, less competition, more room for growth. You can stay and play it safe. Or you can risk it for the biscuit and become an MD/partner much quicker. Its all about are u ready for the risk.

I agree with everyone here but with the caveat of - if there is room for growth. Some small funds have no real intention of bringing people from associate to partner. You can tease this out in the interview/offer process.

Jul 16, 2019 - 6:23pm

Stability is for scared beta cucks. Go with the new fund and rack up that carry. You can always go back to corporate whore if you need to.

Jul 17, 2019 - 12:44pm

Looks like a scared beta cuck hit you with that MS

Edit: more of those on this site than I thought

“The three most harmful addictions are heroin, carbohydrates, and a monthly salary.” - Nassim Taleb
Jul 16, 2019 - 6:57pm

Do you know the partners who are starting the new fund (e.g. are they breaking off from your current team and taking you with them?). If that is the case I think the move makes more sense since you are joining a more known quantity. If a headhunter reached out and said Jeff and Bill are starting a new fund and are looking for associates, I'd make sure you have done a ton of due diligence.

Just note that (assuming this is a buyout fund) $250mm is a REALLY small fund. You are going to be pretty limited in the size of acquisitions you can make and the ability to do meaningful add-ons. You will also work with significantly less sophisticated clients than you are used to at GS and your current fund (assuming it is a true Apollo/Bain/etc. MF) and this can be extremely frustrating.

Jul 17, 2019 - 12:37am

Never been in PE, but I did do a stint in sponsors coverage for 3 years. The way I look at it is the MF deals are too big and often harder to create value In because they do have process and operations expertise. The companies have the resources to hire a bunch of Harvard MBAs so is it that different than the Harvard guys at the PE fund buying them?

I think about a $10M EBITDA founder-run company, and there are usually major gaps in leadership and massive opportunity to streamline and grow faster.

Jul 17, 2019 - 4:02pm


You can still create meaningful value through leverage and buying down your multiple via add-ons. Not all value is created through organic blocking and tacking growth

Agreed, but most multi-billion dollar companies should be able to do that without a sponsor, even if they don't in actuality. That was my point about hiring Harvard MBAs.

Jul 17, 2019 - 8:21am

I don't understand this. Won't your comp at a MF be significantly higher even if you get a fraction of the carry that you do at a LMM fund?

Let's say you have a $250m fund that goes 3x for $750 and your shop keeps $150. You are at a startup shop and keep 5%, so 7.5m.

Alternatively you stay on as a VP at a $5B fund that goes 2.5x for $12.5B. Your keeps $2.5B and as a VP, you get 0.5% carry, which is still $12.5m. Even if you pull some levers (lower returns to 2x) you still come out ahead.

Where are my numbers breaking down? I'm guessing you don't actually get 0.5% carry as a VP?

Jul 17, 2019 - 8:52am

Making Gravy think you are generally thinking about this the right way in terms of "okay we have x fund size and we earn a y MOIC on it" but your calculations are a little off in the fact that you are including the initial fund in the numbers when calculating carry. In the $5B fund example, the capital gain on that fund would only be $7.5 ($12.5 ending value - $5.0B fund). You would have to know the exact numbers and carry metrics for each fund to really make an educated decision. The agreements with the LPs could be less favorable at the big fund (< 20% carry, which is often the case as funds get bigger) which would make a big impact on the decision

Jul 17, 2019 - 3:22pm

The issue with your numbers is that you assume that both options have an equal chance of happening (I'd also say your return and carry allocation are generous). If you want to compare both options over a long period of time, you have to factor in probabilities and as I mentioned in my earlier post, the chance of getting promoted at a MF are not very good at any level so when you compound those, the chances that an associate have to make MD / partner are minimal. Sure, those at MF who do get to make partner at MFs are probably making more (if not a lot more) than a partner at a MM fund. But I would think the OP has a significantly higher chance of staying on the partner track (and ultimately making partner) at the new fund rather than staying at the MF.

Jul 22, 2019 - 10:20pm

Perhaps. Been at my current fund two years (career track, so I don’t HAVE to leave), and am in no way pretending I’ve learned everything there is to learn here. But my responsibilities are fairly narrowly defined IMO. Small fund offers broader learning experience I think, albeit less sophisticated.

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