PE Fund of Funds to Actual PE?

Hey guys,

I am curious as to whether any of you believe that working for a private equity fund of funds (a company like stepstone) provides a realistic path into landing a job at a PE firm. I can see how a great deal of the knowledge would be transferable and valuable from the standpoint of understanding the way funds raise money and gauging their performance. I am just curious as to whether people see a position like this as only a path to a fundraising/monitoring/reporting position in a PE firm or if it is possible to transfer into a true associate role.

Any thoughts would be appreciated.

Thanks,

Comments (37)

Nov 1, 2013

I imagine it would be difficult, I believe less of the skill set would be transferable than you imagine. That being said, I'm sure it's not impossible. You may need to go to banking first- you won't have the modeling skills they want. I'm sure it's not an easy transition.

Nov 5, 2013
notthehospitalER:

I imagine it would be difficult, I believe less of the skill set would be transferable than you imagine. That being said, I'm sure it's not impossible. You may need to go to banking first- you won't have the modeling skills they want. I'm sure it's not an easy transition.

This. Although the material may be similar, the work is entirely different.

Nov 1, 2013

Know a guy who did IB then moved to a large FoF. Tried to move to PE but had a difficult time. Was paid close or in line with PE though.

Nov 4, 2013

GS PEG has a history of sending its analysts to top megafunds.

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Nov 5, 2013

Tough to do. Ideally you want to be at a FoF with a direct investing function, and that's where you'd want to sit because you atleast get to some exposure to PE investing, albeit superficial. Even in the direct investing group, its still an uphill battle.

To the guy referencing GS PEG... its typically out of the direct investing group within GS PEG... I'd caution against thinking that GS PEG is the road to MF.

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Nov 5, 2013

That is along the lines of what I was thinking. Thank you for the input!

Nov 8, 2013

possible but very difficult, gotta network like crazy and get lucky - tough to develop the modeling skills doing FoF work

Nov 1, 2013

To clarify, do you have previous IB experience? I imagine the transition would be infinitely easier if you went IB--->FoF----> PE (for whatever reason).

Jun 13, 2018

And if you have prior PE experience? PE/ FoF/PE?

Nov 5, 2013

Yes, in IB now (not at a BB). Will still most likely avoid this route after the comments above.

Nov 1, 2013

Probably a good idea, I think IB---> PE if possible is obviously easiest. Probably also easier to go to a "lower quality" PE fund and then move to a better one than it would be to go to FoF. I'd argue it'd be easier to stay in IB for a while longer then go PE, or even go consulting for a while then PE etc. Basically, many easier options and you don't want to get yourself stuck in a FoF role if that's not where you want to be.

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Nov 5, 2013

Got it, thanks. I have been weighing the consulting route a great deal lately as some partners at my firm are MBB alums.

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Nov 8, 2013

this has been discussed in detail many times--do a quick search. Most people will tell you that the skillset is not readily transferable, so it's tough to do (esp. to MF) regardless of how much you network while at your FoF. This isn't typically (or really, at all) at route to PE.
Best advice i have heard is network like hell then go get an IB job (or maybe even MBA -> IB), and use that network once you have some more relevant experience.

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Nov 8, 2013

Could move to a megafund on their IR team maybe but I've never seen anyone make that jump directly as an investment professional.

Best Response
Nov 8, 2013
Hugh Myron:

Could move to a megafund on their IR team maybe but I've never seen anyone make that jump directly as an investment professional.

This.

I'm of the belief that anyone can do anything if they set their mind to it and work at it (and this means moving from like FoF to an investment position at a fund and vice versa). Sadly much of the market disagrees with me but that's for a different thread on a different day.

A few thoughts. I've been in this game a while now (and have seen it happen, though in Asia where things can be less structured). Essentially here's the deal. For most roles with PE firms that you will get from the FoF side will most likely be in IR. You have a natural advantage over bankers in this role because as an LP you'll have other LP relationships and know how LPs thing and know the individuals making decisions etc. So in theory you could be a more informed, nuanced fundraiser than some banker (though if they want a ppt monkey they can go trawl the banks). IR is super important and if you are good at it (and raising money) you are gold since you can get a cut of what you raise and carry.

You can and definitely should network though (it never never hurts). The mega funds probably won't take you as an investment professional unless someone high up really likes you and dictates that you need to get in (small chance) plus it's probably not a job you want. You can at smaller funds since they are more family run kind of shops especially if you get to know the people and they like you. Although you may not have technical skills (you can learn to model using samples on this site and from banking friends who will teach you the basics) and you can practice by reading 10Ks etc when doing your own PA investing (it makes you a better fund investor as well).

Ok. So then. How to network? Well. Talk to everyone. Tell them your story. Get to know them over coffees, beers, meals, diligence events, planes (more Asia specific) etc. More importantly (especially the senior types) ask for theirs. People will be open to talking about themselves and happy to share and brag (you'll be surprised how random some paths have been). Ask nice softball but pointed questions about them. And about their career and investment philosophy. You're young, hungry, eager to learn. Some might even ask you about yours. Tell them what you've learned. What interests you. Ask about specific investments? Be interested. Did they invest in retail? Funny. You just read GAP's 10k and know x,y, z (keep it basic and don't brag). What are the parallels, differences, other things you should look for? Do this enough and I can bet you someone, somewhere, may be like "hey you seem really into investing, smart, work hard and maybe you should give it a try. I know someone that..."

There are literally TONS of funds out there. A bunch just aren't name brands and most people have never heard of them.

There is also the whole joining a sovereign wealth fund and hope they do directs alongside GPs. If you climb up the ranks then you'll have tons of relationships etc and can maybe move to a GP that way.

Or you can get a banking job, pray markets don't collapse, join the ratrace and do the standard route.

Another idea is meeting and networking with hedge fund managers, many who can be less structured than PE guys but are fundamental in their thinking/process. For those guys you'll want to have stock pitches ready...

Good Luck

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Nov 8, 2013

This is something I honestly don't know the answer to. Do large PE funds have large IR teams? I feel like the theme at hedge funds is that large funds with high Sharpes don't do a whole lot of marketing.

Nov 8, 2013

Thanks for your responses, I agree that it's probably better to still try to go banking and then PE rather than directly. Both seem difficult though so I'd rather just make the direct transition if it's possible.

As far as networking though, I'm not sure what would be too aggressive considering I work with them and I wouldn't want word to get back to my managers. What do you guys think is appropriate? Should I reach out to many of the GP's and just be vague? Or should I be blunt and say I want to make a transition?

Nov 8, 2013

Had one of the three head MD's at Bain Capital once say to me "PE FoF's is where you go to die. Don't ever go there. It will never help you get an investment professional role".

While extreme, that was a direct quote from a guy that has run a MF PE shop since the mid-80's.

Nov 8, 2013

Yes, it is far too steep of a learning curve. Perhaps (still small chance) with a smaller, lower middle-market fund, but not at a Mega Fund. If you're looking for an IR position, I know ex-EB banking analysts that took IR jobs at MFs, which reflects the level of competition for even those roles.

This is probably not what you want to hear, but the best move would be to lateral (probably start as a first year) to an investment bank; the summer is the best time of the year to start looking. Maintain your contacts at the MF, casually grab coffee and hope that you can leverage your relationships to get involved in their next recruiting cycle.

Best of luck.

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Nov 8, 2013

pe recruiting is almost entirely done by set group of head hunters through a standardized process. get on their radar. otherwise you are looking at a very painstaking journey.

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Nov 8, 2013

PE recruiting has not even started for summer 2014; above poster might be referencing 2013.

I think having FoF experience is great to have, and you should be able to get the attention of HH's. While you say you 'know' more about PE than IBD guys, this doesn't make a difference with Direct PE guys. What's important is the robust modeling experience, which you attain in IBD.

Nov 8, 2013

.

Nov 8, 2013

no where in my post does it mention 2014 or 2013. general speaking.

Nov 8, 2013
banker00:

no where in my post does it mention 2014 or 2013. general speaking.

So why are u saying "PE recruiting is done"? It's done for 13, not 14.

Nov 8, 2013

pe recruiting is done by headhunters. lol not pe recruiting is done. are you fuckin retarded?

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Nov 8, 2013
banker00:

pe recruiting is done by headhunters. lol not pe recruiting is done. are you fuckin retarded?

Far from retarded, actually. Everyone here knows PE recruiting is carried out by recruiters, ur sentence reads incorrectly and adds absolutely no value to the OP's question.

Nov 8, 2013

thanks for your comments everyone but lets keep this constructive =)....also normally, when you try to network with PE guys, what kind of things should you talk about? I mean is it fair to ask which HH they might be using, asking them to help you push you resume in front of their HR directly (if possible at all)...

"I worship individuals for their highest possibilities as individuals and I loathe humanity for its failure to live up to these possibilities."

Nov 8, 2013

OP - banker00's advice was actually pretty solid despite the reception it received from johnny_quest.

To add a bit more detail, some of the headhunters who you should target would be Oxbridge, CPI, SG Partners, Amity, Henkel Search Partners, etc.

Getting onto their radar is the best thing you can do apart from initiating dialogue with the shops directly. Some smaller shops may be receptive to cold approaches but most of the more reputable shops prefer to let headhunters run the screening process and then provide a list of candidates to interview.

Other than that, is there anything in particular that makes you think that your modeling and understanding of PE is better than kids who work in top sponsor groups? Speaking from what I experienced having gone through the PE recruiting process this past year, I can honestly say that it was extremely intense and there were lots of very qualified candidates who were great at modeling and really intelligent. I wouldn't underestimate the types of candidates you will encounter when interviewing for these jobs. I'm sure you are adept at modeling and understand PE, but I would devote a lot of time to preparation regardless and try to ensure that you convey yourself as humbly as possible because I even saw kids who were better than me who didn't get offers, likely because they were perceived to be too arrogant. PE firms are looking for the whole package, so coming across as well rounded, modest, and hard working is critical.

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Nov 8, 2013

I am really sorry if I came across as arrogant. I am in no way underestimating the competition and I know the kids will be solid and I will have to work my ass off to be adequately prepared for the competition. In fact, being in a FoF I completely admit to the relative lack of modeling that I have but I hope to make up for it through my equity research internship where I learnt and got to built the mega models for publishing etc...I feel PE FoF makes you very familiar with all the PE terminology, the news, the strategies, the fund structures, the tax issues and even a lot of private info of the shops since u meet managers on a daily basis. While this is great for interviewing, i am having concerns in networking with PE managers since its very very likely that my group would have invested or been in touch with the manager and I am not sure how that may play out and if they may inform or ask my vps...

"I worship individuals for their highest possibilities as individuals and I loathe humanity for its failure to live up to these possibilities."

Nov 8, 2013
ratrace12:

I am really sorry if I came across as arrogant. I am in no way underestimating the competition and I know the kids will be solid and I will have to work my ass off to be adequately prepared for the competition. In fact, being in a FoF I completely admit to the relative lack of modeling that I have but I hope to make up for it through my equity research internship where I learnt and got to built the mega models for publishing etc...I feel PE FoF makes you very familiar with all the PE terminology, the news, the strategies, the fund structures, the tax issues and even a lot of private info of the shops since u meet managers on a daily basis. While this is great for interviewing, i am having concerns in networking with PE managers since its very very likely that my group would have invested or been in touch with the manager and I am not sure how that may play out and if they may inform or ask my vps...

I don't think you come across as arrogant, this is just a cautionary warning. I was pretty humbled in some of the interview processes I went through. I thought I was well prepared and knew my deals and knew what I wanted to articulate and was caught off guard. I think the biggest thing to realize is that PE recruiting is so different from banking recruiting because most principal investors realize that so much of banking is bs and that the process to get into banking is just jumping through hoops based on rote memorization and canned responses. Bankers don't have their own money on the line and try to absolve themselves of any decisions that can have risk associated with them if at all possible. That's why bankers like to show a client 10 different scenarios and then say "which do you like best," rather than say "we think this would be the best decision for you and here is why."

Knowing this, in PE interviews, they aren't going to let you get away with giving a canned answer. They are going to drill down until they find out exactly what you do and don't know. So for an example if you were a summer analyst and were shopping an offer around trying to trade up to a better bank, a banker might ask you to tell them about a recent deal you worked on and you might give some canned rhetoric you heard one of your VPs say about how "the deal is really attractive because it gives the acquirer access to the targets facilities and they can realize cost reductions" blah blah blah, and a banker will likely think "ok this kid understands the game, he would probably make a great addition." A PE guy on the other hand will likely say something like the following, "oh that's interesting... So what was the acquirer's EBIT margin in 2012? Hmm, ok... and what do you think was primarily driving the perceived cost reductions?" Or "cool so you worked on a high yield deal for this company, what were the covenants like? What was the ratings impact to the issuer, if any and are there any operating metrics that would be close to triggering a review / potential downgrade? If we were to potentially look at this company as a target, what types of issues would we need to think about in a change of control scenario, what's the call premium, make-whole implications, etc?

Essentially, you can't just throw out statements because these guys are great at detecting bs. They are going to want details. Why did the deal make sense? Why shouldn't they have purchased this company? Their margins are better (and they will cite them), they have a more attractive leverage profile, and no activist concerns. At the end of the day you aren't going to have a perfect answer for everything but you will notice that they think in a fundamentally different way as an investor than you do as someone working in a capacity to market transactions. Deconstructing your initial thoughts and responses to these types of questions and reconfiguring them to take into account the concerns of an investor is a process. I for one realize that this is going to take substantial time for me to develop, but it's something that excites me because it refines the way I think about various other facets of my life outside of work.

The above is why I would say that you really need to devote a significant amount of time to prep...