Moving from FoF / Next Steps
I've been working at a PE FoF/co-investments group for ~3 years since I joined right after undergrad and I'm starting to wonder what my lateral/exit options are. I'm somewhat concerned about total comp, but I'm more concerned about what kind of skillset I'm developing long term and whether it's relevant to the overall market. It's doubtful I can lateral into a PE/growth equity GP.
What are my options here? Would the play be to try my hand at BB / EB / MBB consulting before trying again? Could I even make it or would I have already "missed the boat"?
Hang in there brother. I previously worked at a reputable FoF/co-investment platform before moving on to growth equity. This website definitely looks down on the role and isn't necessarily the best place for advice on this topic, but I'll try to help. Your recruiting process is truly what you make of it. You won't have headhunters blowing up your phone or email and will not have a shot at the megafunds or UMM firms, but I know plenty of others (including myself) that have moved to LMM PE, VC, growth equity, and a very select few to MM PE (but typically post M7 MBA) in off-cycle recruiting. The firm I was at was relatively hands on in the diligence process in terms of calls with the sponsor and management team, modeling with our own downside assumptions, and putting together IC memos. Although the diligence wasn't as in-depth as the GP, we saw a lot of co-investment deal flow on some reputable deals, and I would still work to learn everything I could about a business, merits, risks, etc to be able to really think like an investor. You'll have to be proactive in applying and in your outreach but it's definitely possible.
I'll leave you with this. I'm at a very solid growth equity shop now but the grass isn't always greener. Yes, the pay is more at the associate level compared to where I was, but many of the top co-investors/FoFs such as Alpinvest pay nearly in line with other buyside roles. Growth equity definitely sounds sexier but most of the work has been sourcing and relationship building, monitoring PortCos, and investment diligence (but still less than PE buyout firms). It's really not all that different from the co-investment side, the transaction dynamics are just slightly different. There's a reason people leave banking and exit to firms like Sig Guff, Alpinvest, Adams Street, Harbourvest, Neuberger Berman, Goldpoint (rip). The lifestyle is much better compared to many PE/GE shops with long hours, and the higher up the ladder you go, the cushier it gets.
One of my major considerations is the level of proactive in-depth due diligence done on our co-investments and how much we rely on our fund relationships. I suspect that's probably the case with most LPs but I don't have a lot of perspective on that topic. We occasionally source our own deals but that's a minority of the opportunities we consider (though those were excellent learning opportunities). I'm in agreement that you can definitely learn a lot from going through all the GP's diligence but part of me thinks it's not the same as doing your own primary research to build strong conviction around a particular thematic or managing a process with the transaction advisors (i.e. technical consultants, IB, transaction services/accounting/tax, legal, etc.). This is partially why I was floating the idea of trying IB / MBB so that I could build those skills.
The other consideration I have is on the overall future prospects of FoF industry. While institutional investors are seeking to diversify their assets into alternative investments, there seems to be a push towards internalizing the portfolio management instead of relying on FoFs for cost reduction reasons. I don't blame them for trying to reduce two layers of fees into one, but it does make me wonder where this field will go ultimately. I'm probably more grounded towards PE buyout and growth equity compare than most people on this form; seen how things can go if a GP's latest fund goes south/isn't going to make carry or if they struggle to raise a successor.
I definitely agree with you on lifestyle; my hours are considerably more predictable and lower than my peers. Pay is a different matter since there's a massive discount between my firm and the street.
Your concerns are definitely understandable. Just to address your fears about the industry going away. I personally think this is greatly exaggerated for the simple fact that most institutional LPs allocating dollars still don’t have the infrastructure or desire to build out the infrastructure to really identify managers as well as do direct deals. Sure, some of the largest pension funds out there are making the push to do so, but there are plenty of HNWIs, family offices, foundations, endowments, etc. that have a lot of money to allocate and trust those the truly understand specific markets to invest or simply can’t pay to hire a skilled staff to do so themselves. So, maybe some big regulatory changes happen overnight that make it an even more unfavorable business model but if you’re really worried about the industry going away but enjoy the work, just go work at an endowment or family office.
As a follow-up, you mentioned the "recruiting process is truly what you make of it".
If I may ask, could you elaborate on that point?
What kind of process or steps did you do?
By that I mean proactively finding available job opportunities in the area you’d like to work in, continuing to build out your network, finding recruiters that are receptive to your background and willing to help put you in processes where you have a realistic chance (HHs that cover mega funds are unlikely to help).
Question for the OP, what does the career path as your current firm look like? I thought another advantage of FoFs would be more reliable (albeit lower) carry.
There's a clear path of progression up to a certain point. Carry points are entirely dependent on the fund. In my case, there's no carry or long term incentive. Salary of ~$120K with bonus of ~20%.
You could be a good fit for a secondaries role, on either the buyside or sell side (PCA). Lots of hiring across the industry currently and would think your experience could be helpful for both LP and GP-led deals
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