PE: Is it worth going to business school?

I know this question has been asked and answered in the past, but it seems the sentiment surrounding business school is continuing to evolve in the industry and I'd love some up to date opinions on my situation specifically.

Background: I'm currently a 1st year PE Associate at a UMM firm. Went to a non-target undergrad, and then did a few years at MBB before PE. Starting to think about business school as I'll be applying next fall if I decide its what I want to do. My firm will promote from within without business school, and I could see myself staying, but I'm not 100% sure yet. I could also see myself wanting to move more into Growth-stage investing. 

Context: I took the GMAT after college and scored well (750+) and had a high GPA (3.9+) so I'd really only be targeting H/S, maybe W.

Question: Is it worth it for me to go to b school, assuming it's either HBS or Stanford GSB? On one hand, if I can get promoted internally or lateral to Growth without it, why pay for an MBA? On the other, isn't it valuable to get the network to source deals in the future + the "stamp of approval" from one of the top MBA programs, especially given my non-target undergrad? Any opinions are welcome / appreciated!

Comments (35)

 
  • Associate 2 in IB-M&A
Aug 31, 2020 - 11:11am

Honestly where you went to undergrad really doesn't matter anymore. You've already made your way into the industry and established a track record that you belong, where you went to undergrad is a moot point at this juncture. As far as getting an MBA goes it really depends on your long-term career goals. If you plan on staying in PE talk with some of the MDs/Partners/Principals in your firm who both have and don't have MBAs to get their insight on why they did or didn't pursue an MBA and the effect that decision has had on their career/life. If you plan on moving out of PE whether or not it will be useful really depends on where you want to go. Pursuing an MBA could also provide with a path you didn't even know existed. Personally, I have an MBA but I only just finished so I don't really know if it was worth it yet, talking with people who are a good 5-10 years out of their program and those who have progressed in their career without an MBA should be able to provide a great deal of insight.

 
  • Associate 1 in PE - LBOs
Aug 31, 2020 - 4:03pm

This is helpful, thank you. I'll talk to some of my superiors and get their take on it.

Outside of PE, where have you seen the MBA to be helpful? If I leave investing, I would probably want to do a Chief of Staff type role with a path to P&L ownership after a few years. Is the MBA generally valuable in that context?

 
  • Associate 2 in IB-M&A
Aug 31, 2020 - 6:02pm

Coming from consulting and IB I don't have a lot of experience in the more pure play "corporate" world outside of my interaction with my clients so I won't pretend to be an expert here but if you were to transition out of PE to this world I think this is where the MBA network would prove to be an incredible asset in being able to open many doors. Depending on the program you choose and the classes you take they could provide you with a great deal of knowledge on how to function in those capacities as well but that is not to say you wouldn't learn those same skills in your current career.

 
  • Intern in IB-M&A
Aug 31, 2020 - 4:36pm

Just a prospect here, but didn't an MBA used to be almost required for promotion? I don't think many higher level employees today had too much of a choice.

 
  • Associate 2 in IB-M&A
Aug 31, 2020 - 6:06pm

MBAs used to be much more common place to move above Associate level so there will be a lot of senior people who have them but that really isn't the norm anymore. There are still some old school firms that require an MBA to move above a certain level but a lot less common these days. There are plenty of MDs at my firm that don't have an MBA.

 
  • Associate 1 in PE - LBOs
Aug 31, 2020 - 11:50am

So, funny enough I have the exact same profile, down to scores and stats, except a different consulting firm than MBB (but a high quality one nonetheless). Here's an interesting story that made a lasting impression on me:

 

The partner I once worked for in consulting knew I was interested in an MBA, and also knew I wanted to be in PE from day one, so was very open with me about my development, particularly about MBA aspirations

 

One day, they sourced a DD project from their MBA network with an extremely fat price tag. They called me up and told me about the DD (mainly because they were staffing me to the project) and then said "I sourced this through my MBA network. I just paid for my MBA and then some. This isn't the first such project either. Think about that when considering the MBA ROI".

 

I imagine the same goes with dealmaking.

 
Aug 31, 2020 - 6:54pm

Good luck. I think worth it. Had a good experience. On the stats, I had the same stats and was rejected at several of the above and so were some peers with the same stats so I would be sure to incorporate that uncertainty into potential next steps when applying. 

 
  • Associate 1 in PE - LBOs
Sep 2, 2020 - 7:16pm

Why move to growth if you have buy in at your current UMM fund and assume you're performing?

 
  • Associate 1 in PE - LBOs
Sep 2, 2020 - 11:53pm

I'm not 100% sure yet what I want to do, but the growth stage interests me a lot because my favorite business models are SaaS / consumer internet / marketplace businesses and I'd be excited to be part of helping a fast-growing portco reach their potential. We do some tech at my UMM, but we mainly spend time in other areas and I could see myself wanting to specialize in the growth stage later on. It's a shame PE recruiting is literally months after starting work, so you don't know what you don't know when you're going through on-cycle. 

 
Sep 2, 2020 - 9:54pm

I'd get an MBA, your finance network is likely pretty weak and an MBA will enhance that. Even Booth / Sloan / Columbia / Kellogg may make sense.

I'd give different advice if you went to a target undergrad or did an IBD analyst stint instead of MBB since there's a better chance you have a good network from those avenues.

 
  • Intern in IB - Ind
Sep 8, 2020 - 5:50pm

So what would your advice be for someone that has a similar profile (semi-target, 3.9) with BB analyst experience? Would it make sense for this person (assuming already at a UMM fund as an Associate) to get an MBA? Only H/S or do all the M7 provide substantial benefits? 

 
Sep 9, 2020 - 8:25am

So what would your advice be for someone that has a similar profile (semi-target, 3.9) with BB analyst experience? Would it make sense for this person (assuming already at a UMM fund as an Associate) to get an MBA? Only H/S or do all the M7 provide substantial benefits? 

I'd assume you would have a pretty strong finance network at that point so likely not needed.   

That being said a 2 year break definitely is nice.

Whoever through shit at the original comment, I stand by my comment.  PE is very relationship driven for sourcing /divestitures /etc. and the amount of people going into PE from MBB isn't high enough / is relatively concentrated to certain firms to really develop that network.  Sure you can get that VP promote, on work product alone but the VP -> principal promote is where sourcing really makes a difference.  Forest through the trees.

 
Sep 8, 2020 - 7:20pm

The MBA is an early-career move to offer short-term industry/functional/geographic optionality, and in the medium to long-term, dividends from an enhanced network.

This is pretty obvious (re-read it as many times as necessary), but usually, 26-28 yr olds making good money in finance have a hard time justifying the short-term opportunity cost, and lose sight of what the MBA is really meant to provide.

Just be clear on what the trade-off means. I don't make much more money than I would have without my (top 4, top 5-ish) MBA, but overall, I'm way more confident about my future, due to the short, medium and long-term benefits I just mentioned.

The truth is you're the weak. And I'm the tyranny of evil men. But I'm tryin', Ringo. I'm tryin' real hard to be the shepherd.
  • 1
 
Sep 8, 2020 - 10:20pm

the bar for recruiting into PE post-MBA is ironically way lower than the bar for lateral hires in my opinion. If you lateral you compete with many tenured candidates while MBA recruiting is more structured / targeted with a well defined timeline

 
Sep 9, 2020 - 2:29pm

An MBA buys you a network and optionality down the road if you switch out of the industry (e.g. to corporate). If you're in PE, your cost including opportunity cost will be close to $1M of pre-tax earnings. Whether it's worth it or not is up to you to decide. 

 

The optionality for me alone would be worth it, not necessarily to use it, but when you're working in such a high stress industry, peace of mind is priceless. 

 
  • Analyst 1 in IB - Gen
Sep 9, 2020 - 4:03pm

Can you elaborate? Presumably if you land the VP / post-MBA role at a buyside fund you'd be doing at least as well as a post-MBA grad right? Are you saying that even at the VP level, the VP with the MBA has more optionality than the VP without an MBA?

 
Sep 9, 2020 - 4:38pm

Can you elaborate? Presumably if you land the VP / post-MBA role at a buyside fund you'd be doing at least as well as a post-MBA grad right? Are you saying that even at the VP level, the VP with the MBA has more optionality than the VP without an MBA?

Even putting the network piece aside, the probability of you making partner from VP at the same firm is still pretty low. When you go to lateral to another PE firm, long-only, HF, corp dev, roles, etc., an MBA will give you an edge. 

 
Sep 9, 2020 - 2:47pm

Reasons for an MBA

1) Post-MBA job, 2) network, 3) pedigree. 

1) If you can get the same job as a post-MBA, there's no need for one. 2) If you have a robust industry network, need need for an MBA. 3) If pedigree isn't important to you OR you already have it, no point to spend 2 years doing an MBA.  

No need to overthink this all....for some an MBA is a great career reset for others it isn't needed. 

 
Sep 9, 2020 - 5:46pm

I don't regret mine at all, despite the significant amount of forfeited carry and lost salary. Sure, it felt like a lot of money at the time, but at no point in my life have I ever "missed" that money. If you do stay in PE you'll very quickly reach the point where having a few extra hundred thousand in your bank isn't going to change your life whatsoever. As you progress, you'll see the difference between a $4M home and $5M home is basically nothing. If you plan on leaving PE and working in a substantially less lucrative field, then of course the money is a very important factor. Based on your background, this certainly doesn't sound like you.

 

On the flip side, my MBA has proven beneficial countless times in my career and in my social life. Even when I left the USA, I instantly had a social network as well as a professional network. It also gives me something in common with some strangers. I randomly joined a pickup football game in the park and a guy was wearing an INSEAD shirt. We started talking about the MBA experience. Turns out a bunch of the players were INSEAD MBAs that worked at McKinsey or BCG or in investment banking. Next week another guy happens to be wearing a Booth hat - instant connection. This sort of thing seems to happen to me all the time. Don't undervalue it.

CompBanker

  • 1
 
Sep 9, 2020 - 8:05pm

Thanks for writing this up.  How long did it take until you reached the point where you no longer missed that money?  I'm starting to recruit for post-MBA VP roles and I've heard carry distributions typically aren't real for 7-10 years (between investment period and hold period).  Given the {cost + opportunity cost + time value} could be pegged at $1,000,000+ of pre-tax salary, and pre-MBA MM salaries are MBA has been a tough pill to swallow.

 

I'm actively considering a PortCo role as well, which would have substantially lower comp.  If it was slightly lower, I would probably take it - but if PE comp is so high, I'll probably just stick it out.

 

I'm quite familiar with all the compensation studies out there (GoBuyside, H&S), but do you mind loosely sharing the comp progressions you've seen for MM?

 

Loosely according to my MBA career management, it seems to be about $300-$350,000 total cash and $1.5-2.0M of carry dollars at work.  Would also be very curious on ~VP3 (or any late-stage VP) and principal level average comp (obviously super variable, but averages help).

Array
 
Sep 11, 2020 - 6:26am

monkey_brah

Thanks for writing this up.  How long did it take until you reached the point where you no longer missed that money?  I'm starting to recruit for post-MBA VP roles and I've heard carry distributions typically aren't real for 7-10 years (between investment period and hold period).  Given the {cost + opportunity cost + time value} could be pegged at $1,000,000+ of pre-tax salary, and pre-MBA MM salaries are MBA has been a tough pill to swallow.

I never missed the money and my forfeited carry + cash compensation ended up closer to $3.5M (now that I know how well that fund performed). I knew what I was signing up for in the beginning and accepted it right off the bat. Yes you may feel a bit cash poor after graduation due to having to meet capital commitments, but as soon as carry starts coming in, you're fine. And yes it can be 7+ years before you get your first carry payment, but once you get your first $1M + distribution, you'll laugh about every worrying over $100 here or there. What's done is done. Don't focus on it - you'll drive yourself nuts.

I'm actively considering a PortCo role as well, which would have substantially lower comp.  If it was slightly lower, I would probably take it - but if PE comp is so high, I'll probably just stick it out.

Comp doesn't even compare PortCo vs. PE. Night and day. At the companies I work with, I was out earning the CEO by a pretty wide margin (once carry was included) as a PE VP.

I'm quite familiar with all the compensation studies out there (GoBuyside, H&S), but do you mind loosely sharing the comp progressions you've seen for MM?

Too variable. Wouldn't be helpful. Some firms can give millions in carry to a post-MBA while others give nothing.

Loosely according to my MBA career management, it seems to be about $300-$350,000 total cash and $1.5-2.0M of carry dollars at work.  Would also be very curious on ~VP3 (or any late-stage VP) and principal level average comp (obviously super variable, but averages help).

It can vary by millions. Don't even bother trying to estimate it. It is a lot and depends entirely upon the generosity of the leadership and success of the firm.

CompBanker

 
Sep 9, 2020 - 9:17pm

I think people are underselling the social aspect. It's a 2 year vacation without losing seniority if you stay in PE. People constantly talk about wanting to take a year off or take x or y entrepreneurial risk but don't because of career choice. Well here is a golden opportunity to just do basically whatever you want for 2 years and end up in the same place (at the cost of a million bucks) given grades don't matter. If you wanted to try a startup, this is a golden opportunity. If you wanted to travel to 30 countries, you can do that too...

 
Sep 9, 2020 - 9:22pm

What concert costs 45 cents? 50 Cent feat. Nickelback.

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