MF PE Investor Mindset Prep
Hi All,
Was wondering how people here prepped their investor mindset side of interviews and what specific resources they used (Books, memos, etc). The technical + behavioural side has been broken down in numerous guides and courses but I believe that there’s a bit of a lack of investor “mindset” or thought process prep in these courses. Context: Junior undergraduate student going to GS/MS looking to rerecruit FT for MF PE role or at least get some reps in before On-Cycle recruiting assuming my summer goes well and head back to my bank for FT.
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Bump
Just watch 300 and you’re set.
Following
I did a couple of internships for this reason as being in sell side at some point starts killing your skeptical side. Read a bunch of investment memos (you can find them floating around easily) and focus on the key risks section. Once you go through these, things will start to make sense. Also not sure if you've done work on the fundraising side, but look through questions funds ask when you send them IMs. If you read through them, you will see patterns, esp around management team , incentives, MOATs etc. Happy to elaborate if you need.
At MF PE.
Just know basics around competitive dynamics and other general considerations. If you have genuine interest it will show, no need for too much outside prep.
Some books that were useful:
- Lessons from Private Equity any Company Can use
- The Private Equity Playbook
- The Masters of Private Equity and Venture Capital: Management Lessons from the Pioneers of Private Investing
- Understanding Michael Porter: The Essential Guide to Competition and Strategy
- Private Equity - A Casebook
I worked on this a ton when I was moving to the buy side and it helped a lot in interviews.
1- keep it very simple. Find a simple framework and use that as your scaffolding you use when thinking through an investment. I like porters 5 forces. Simple, elegant, systematic. Keeps you organized and focused and methodical.
2- banking makes you very promotional and optimistic. Be more contrarian and think through if something makes sense intuitively…. It’s a $400bn tam growing 15% a year…. Does that make sense instinctively? There’s a gmat question that gives you a paragraph to read. Then says something to the effect of which piece of information, if true, would change the conclusion of this prompt? Always ask yourself what could you be missing.
3- risk return asymmetry. You can be wrong 80% of the time and still be consistently outperforming if the risk-return asymmetry is right. Are you getting paid for the risk? Cuts both ways. Are you earning the expected return? If you’re investing in a treasury with a 15% expected return, you’re missing something and are taking a risk that may not be obvious to you.
4- be practical and keep a real world perspective I would always say out loud “if you and I wanted to start this business tomorrow…”
5- be humble. One of the issues I ran into early on when trying to be contrarian and sound thoughtful was coming off as arrogant. I’d point out all the flaws in a thesis for a deal I worked on and the response would be “yeah well I’m sure they know what they’re doing”… try to keep it more conversational, a debate between finance nerd friends. Keep a balance of having a view, but also being open to change your mind if compelling data/information presents itself.
6- Be highly analytical. Keep drilling down. IRR is 25%. Okay. What is the composition? How much attributable to top line growth, ebitda growth, fcf generation, multiple, etc? Bring the numbers back to the real world. Based on those splits, what do you think of the risk? 25% irr, 5% fcf yield? So 80% of return is from projected growth in ebitda. Is that driven by sales growth (less knowable) or cost improvement?
7- it’s an apprenticeship business. Important to find the right firm, strategy, team, track record. Want to learn.
Fantastic response
Bump
Bankers take simple and try to make it as complex as possible. Good investors do the opposite. If you can't summarize your thesis on the back of a cocktail napkin you don't know what you're talking about.
There was a comment on the thread "what did banking used to be like?" that went something like steven schwarzman has said the only math he's ever needed to determine if a deal is good or bad is addition, subtraction, multiplication, and division, all on the back of an envelope.
Now the guy's worth like $17B. Excel is probably one of the worst things ever to happen to the finance industry.
A few things I found helpful for mindset. People make it harder than it really needs to be. Really it just takes a ton of work and practice, but it’s something you get better with over time (even though it is painful):
First, start gently rubbing your taint to get used to the experience. Then, try inserting your pinky finger. Once you have the mentality to handle a pinky, gotta try the ring finger, then two fingers, etc. The key is to never settle—best MF associates I know can handle an entire fist up to a partners elbow, skipping honeymoons, birthdays, childbirths, etc. to demonstrate their commitment to the team. It’s worth it though because everyone will be jealous everywhere. I mean who hasn’t heard of Permira, CDR, or Warburg Pincus? Plus the marginal post tax income and brand give you opportunities no one could even dream of. When you go to bars and say, “I work for a tiger cub” the look of envy is obvious.
This is it
Follow MF investor mindset
What does that entail
What the guy said above with the most SBs is totally on point. I'll just add that for MF recruiting, it basically will boil down to demonstrating an understanding of articulating things from an investor mindset and being able to prove your chops technically via the case study mainly.
Also his point about banking making you overly optimistic is so true. You can't approach a PE case study or verbal question by applying an overly optimistic "we will all succeed" banking perspective as it doesn't show that you're critically thinking about deals as an investor who will own the business you're evaluating.
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