MM pe vs MF
Is it true that MM pe is really that much better of a lifestyle and gives more responsibility? From everything I’ve read, It seems like MM is a better role than at a MF, am I missing something?
May 11, 2020
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I’ll talk from the perspective of someone who chose MMPE over top IB->whatever PE after out of UG.
I’m going to a good PE fund that still takes some people from great post IB but usually not the best. It still retains a bit of the corporate model, and the comp isn’t as great, but there is definitely a chance for upward mobility.
In my opinion, I maybe should have just done 2 years IB, 2 years UMM or MFPE and recruited into a shop like I’m at because your IBPE comp will likely be higher the first 4 years out of school. But MMPE is more likely to give carry, have more responsibilities (be on board of companies as an associate/Sr assoc, have your voice heard during investment committees) and won’t get “kicked out” after 2-4 years.
With IBPE you continue branding yourself and can always go to MMPE and your 2nd/3rd tier options are much better. But getting into funds like mine are going to be hard for those kinds of people too- at the end of the day there are only so many spots, and we will retain talent from within more likely. l think between the two choosing what you’re interested in if you know what you’re interested in is key over compensation because you will be incredibly wealthy if the filter is having stuck in the industry. You keep adding bullets to the resume as a MF associate but are compensated well and not really expected to stay, especially when competing with A2A promotes or those who were in your spot then went to bschool and are going for VP.
It might be a grind, but I love the active investing side and don’t mind the due diligence because our company is big enough to have back office and sourcing support but not huge enough to where we are simply turning into a hedge-fund like vehicle where the aim is consistent 15% IRR versus 20-25% as a MM fund. That also comes with more carry/coinvest as an associate or junior associate. We have enough money to continue hiring/not worry about not being paid our bonuses, though wary to make rash decisions of course. I would argue ‘capacity’ is higher for what you’re talking about but it may or may not be true at any given point in time.
However, don’t get drawn into thinking MMPE is a great place to be- there are trade offs with a less corporate model as you seem to be assuming (which it might still be corporate depending on who’s running the fund). You might even work more, and just because you’re in PE doesn’t mean every investment is a ‘turnaround’ or ‘0-hero’ story. I think that you connect with your investments more because the type of businesses are much more varied (small enough time be family/entrepreneurial but also big enough to buy from other PE companies) and carry is that much more important as a factor of comp. I would caution romanticizing the grass on the other side, and if I had to choose PE analyst at MM fund or top IB->UMM/MFPE I’d split it 50-50. I’m still struggling with the decision a bit. The IBMFPE role is pretty awesome and you build tons of connections- but if you really want to do PE as a career, who cares what the differences really are?
I took MMPE because it won’t matter in the long run- if I’m good enough to actually stay in the industry, I’m always going to be one of the smarter people around and will be proud of myself for that. If things don’t work out though I think I may be fucked. I love taking risk however this may not be the point in my career to have done so. Anyway, this post is as much for me as it is for you in terms of reflection during this quarantine time. Best wishes, I tangentially answered your question but wanted to add my perspective because I felt like sharing. If you like the buy side MMPE may be better for lifestyle and ‘letting loose’ because there is much more variance than the simple corporate model that exists in MFPE. However, it takes someone who has done both to really pontificate more than those are on one side of the coin. My main gist is that whatever you’re seeing is 100% firm and strategy specific (even as a specific fund within a firm) and who really knows what the differences are, and if they are there will it be big enough to seriously recruit for one thing over the other?
What the fuck lol?
MF PE reality - work on a lot more larger "opportunities" which generally won't pan out in reality, and execute fewer transactions than your MM / LMM counterparts. Become model bitch for a long time when you're not working on gruesome diligence workstreams.
I sound bitter and am certainly thankful but honestly I would have gone to MM / LMM PE based on my experience. Holistic experience is much more valuable to me.
Long-term comp outlook at growing MM PE franchises in my opinion likely has a higher comp ceiling than at megafunds.
MF's have an insane amount of mouths to feed, in addition to public shareholders. Lots more bureaucracy and at most of these places, PE buyouts isn't even the highest grossing business of the firm anymore (its largely credit).
I'd look for MM funds with teams who have spunout of large, strong franchises on either Fund 2 or Fund 3. Entirely cash comp, and ability to rocket through the ranks if you are good. You also get to grow with the fund, ofc need to diligence founders and their fundraising skills, but you might start at as an associate a 1b fund, and make principal at a 3b fund.
Look at the comp for the non-founder comp for heads of private equity at publicly traded megafunds (its usually publicly reported in the comp disclosures of the 10k). These guys are the "superstars" of the MFs.
Then do the carry math for a strong partner who gets 5% of the carry pool from a 3b fund that 2.25xs its fund. The numbers aren't that much different depending on cash comp and especially since the fundraising cycle is often pretty fast for growing PE Funds. Also depending on the firm, partners often are able to receive management company stakes which become relatively valuable when a Dyal or Petershill comes in.
Carry is also largely dollarized at megafunds, while its given as a percent of the pool at MM franchises, which results in as funds grow, carry growth increasing proportionally to the growth of the fund size.
Great insight! I'm interested to know more about what you mean when you say that MM funds give the "ability to rocket through he ranks if you are good". What sorts of timelines have you seen? Is b-school a requirement at these MM funds? Do you have any target fund sizes that you would recommend or some players in the industry? Incoming at a BB looking to gather a list of MM funds to target for goal setting purposes.
At my UMM shop, we have partners who made partner in 7 years from analyst. The timeline is probably around 12-15 now for similar performing guys. More people means less opportunity to lead prcoesses, etc.
A shop in it's first few years might just have an associate -> principal -> MD track. As it grows and institutionalizes it might add senior associate and VP as steps.
Other opportunities are for example if you are on the ground floor and the guy who brought in a few industrial deals, you can make "head of industrials"at a super young age. As the fund gets bigger, there's not any reason to demote you even if someone laterals in with 20 years of industrials experience.
Stonepeak and Clearlake have some examples of early thirties guys who are group heads of UMM funds.
I'd look for fund launches in 2016-2018 with founders from good shops raising second funds. Usually better if it's not a whole team spinning out as those are more of an extension of the prior firm.