PE lifestyle? Hours, weekends, base, bonus, etc.?

Can anyone already working as an associate in PE give an overview of the private equity lifestyle? Did a search on the forums and could not find anything recent. Looking for details such as:

  • Do you work at MM, FoF, Megafund?
  • What are your typical hours in a week?
  • How often do you work weekends?
  • What is compensation generally speaking for base + year-end?
  • What's the percentage breakdown between analysis, traveling, sourcing, etc.? (Or whatever is in the daily life of a PE associate?
  • Are there any special perks working at your firm? (I hear some PE shops organize sweet company trips)

What Is It Really Like to be a Private Equity Associate?

While lifestyle is likely to vary based on deal activity, location, team and many other factors, a few current PE professionals shared their experiences in the industry:

PE Perks are Awesome

From Certified Asset Management Professional – 1st Year @HFFBALLfan123" :

  • Work at MM
  • At the office around 60 hours a week but always on the hook for calls at all hours (overseas work)
  • Almost always have something to do over the weekend but don't go to the office.
  • Daily breakdown is always changing but i have been traveling a lot lately, do all the modeling as the young guy, zero sourcing... most of the days are spent on the phone gathering info and then nights actually working on shit...
  • Perks are awesome to fucking awesome

Little to No Weekend Work in PE

From Certified Private Equity Professional – 3rd+ Year Associate @samoanboy" :

  • I work at FoF but focus most of my time on co-invests and secondaries.
  • 50-65 hours per week, the top end will usually include travelling time. A normal week at the office will rarely see me in later than 7.30pm (i get in around 8am).
  • Never work weekends except traveling and the occasional three line blackberry message or forward.
  • I spend 40% of my time on DD, 30% on monitoring portcos and funds, 10% on admin bullshit and the rest on travel/lunches/gym etc
  • Perks are mainly the lifestyle which is reasonably laid back and the access to senior partners / CEOs etc (as well as the fancy lunches, 5 star hotels etc - which actually lose their appeal fairly quickly).

PE Less Intense than Banking

From WSO user @CubicleCrowd" :

  • Work at a MM
  • 60-70hrs per week but a lot less intense than in banking and with lots of free time during the work day
  • Never work weekends
  • Base is just above what i had in banking (around $100K), dont know about bonus yet
  • Almost no travelling, very little sourcing, mostly analysis
  • No amazing perks, some team events that juniors initiate but nothing else. but in larger pe shops they have regular off sites

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Comments (93)

Jul 19, 2011 - 1:03pm
  • Work at MM

  • At the office around 60 hours a week but always on the hook for calls at all hours (overseas work), almost
    always have something to do over the weekend but don't go to the office.

  • I doubt anyone is going to give comp numbers

  • Daily breakdown is always changing but i have been traveling a lot lately, do all the modeling as the young guy, zero sourcing... most of the days are spent on the phone gathering info and then nights actually working on shit...

  • Perks are awesome to fucking awesome

Jul 19, 2011 - 1:14pm
HFFBALLfan123:
* Work at MM
  • At the office around 60 hours a week but always on the hook for calls at all hours (overseas work), almost
    always have something to do over the weekend but don't go to the office.

  • I doubt anyone is going to give comp numbers

  • Daily breakdown is always changing but i have been traveling a lot lately, do all the modeling as the young guy, zero sourcing... most of the days are spent on the phone gathering info and then nights actually working on shit...

  • Perks are awesome to fucking awesome

Would you say you get more responsibility in a MM compared to large shops?

I like pickles...
Jul 19, 2011 - 2:53pm
mk2012:
HFFBALLfan123:
* Work at MM
  • At the office around 60 hours a week but always on the hook for calls at all hours (overseas work), almost
    always have something to do over the weekend but don't go to the office.

  • I doubt anyone is going to give comp numbers

  • Daily breakdown is always changing but i have been traveling a lot lately, do all the modeling as the young guy, zero sourcing... most of the days are spent on the phone gathering info and then nights actually working on shit...

  • Perks are awesome to fucking awesome

Would you say you get more responsibility in a MM compared to large shops?

http://www.wallstreetoasis.com/forums/why-do-ppl-choose-megafunds-over-…

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Jul 20, 2011 - 12:00pm

I work at FoF but focus most of my time on co-invests and secondaries.

  • 50-65 hours per week, the top end will usually include travelling time. A normal week at the office will rarely see me in later than 7.30pm (i get in around 8am).
  • Never except traveling and the occasional three line blackberry message or forward.
    *Compensation is fine, dont want to give details.
  • I spend 40% of my time on DD, 30% on monitoring portcos and funds, 10% on admin bullshit and the rest on travel/lunches/gym etc
    *Perks are mainly the lifestyle which is reasonably laid back and the access to senior partners / CEOs etc (as well as the fancy lunches, 5 star hotels etc - which actually lose their appeal fairly quickly).
Jul 20, 2011 - 12:37pm

Why are you guys so secretive about comp on an anonymous forum?

-MBP
  • 2
Jul 20, 2011 - 1:18pm
HFFBALLfan123:
manbearpig:
Why are you guys so secretive about comp on an anonymous forum?

Because, if you spent 10 mins tracking any of my posts and worked with me, it would be soo easy to figure out who i am.


I would hope that people dont care that much to stalk you. im concerned about how to marjet myself compensation wise, not what you make
I Got a dollar and a dream...
Jul 20, 2011 - 1:34pm
HFFBALLfan123:
manbearpig:
Why are you guys so secretive about comp on an anonymous forum?

Because, if you spent 10 mins tracking any of my posts and worked with me, it would be soo easy to figure out who i am.

I'd be pretty concerned if there were people who actually did this on here.

Jul 20, 2011 - 1:26pm
samoanboy:
I'm British and we dont believe it is polite to discuss one's riches. Plus I havent been here for a full bonus season yet so I don't know what the full comp will be.

lol
-MBP
Jul 21, 2011 - 12:53pm

am in MM, 60-70hrs per week but a lot less intense than in banking and with lots of free time during the work day
never work weekends
base is just above what i had in banking (around $100K), dont know about bonus yet
almost no travelling, very little sourcing, mostly analysis
no amazing perks, some team events that juniors initiate but nothing else. but in larger pe shops they have regular off sites

cubiclecrowd.com blog.cubiclecrowd.com
Jul 21, 2011 - 12:54pm

Getting into PE/Life in PE? (Originally Posted: 05/15/2014)

My best friend's oldest brother is partner at a private equity firm in Houston. He said that he would have hired me as an intern for summer of 2014, but they had just recruited several guys from a top-tier school. I don't even know that much about the job, other than he said that the interns they hired would be trained to be quants. My questions are: 1) Does me getting hired as an intern for the Spring of 2015 sound like a moonshot? I come from a non-target state school with no internship experience. Period. I only have retail sales experience. 2) At this point, (just graduated 20 yrs old, accounting BBA) should I be landing a full-time position or still looking for internships? 3) Are salaries at smaller PE firms respectable? 4) How much value do PE firms place on the ability to use a Bloomberg Terminal? 5) What should I expect as far as salary for a quant or first year analyst position? This is a smaller firm. Based on what I know, they do a little bit of everything. It seems like mostly energy trading and PE. Right now I think they have about $50 million under management if that means anything. There's just not that much info on their company website.

Jul 21, 2011 - 12:55pm

I'd search around this site and M&I to get a better definition of what are the different aspects of finance. There's plenty of advice and information.

Although nothing's out of the realm of possibility, a private equity AND energy trading firm would be a bit odd with only $50MM AUM (I don't know if this is true but a massive firm like Blackstone definitely has PE and could possibly have an energy trading group, but they have something like a $250 billion AUM). $50MM for either trading or PE would be pretty small and unless they hire interns because they don't have other staff, hiring a few interns with $50MM would be a lot of staff for not much money and it would be difficult to recruit top tier college kids to it. Like I said, it's not impossible but it would be odd.

Jul 21, 2011 - 12:58pm

The $50M figure seemed a bit odd to me as well-- the article with that info was one of the first results I found. A Reuters article I just pulled up says the company had about $1.6 billion under management in 2007 until they had about a $500 million dollar trading loss about 5 years ago. What I'm getting from the article is that they lost almost everything due to those trades.

Jul 21, 2011 - 12:56pm

PE and trading don't go together. PE doesn't require quants.

You need to do a ton of reading. Start here:

http://www.wallstreetoasis.com/frequently-asked-questions

"For I am a sinner in the hands of an angry God. Bloody Mary full of vodka, blessed are you among cocktails. Pray for me now and at the hour of my death, which I hope is soon. Amen."
Jul 21, 2011 - 12:59pm

This is sounding more like a hedge fund that might do some investments in private securities.

"For I am a sinner in the hands of an angry God. Bloody Mary full of vodka, blessed are you among cocktails. Pray for me now and at the hour of my death, which I hope is soon. Amen."
Jul 21, 2011 - 1:00pm

PE Hours and Lifestyle (Originally Posted: 04/23/2014)

Are PE hours, even MM PE hours that much better than banking? have friends in both and the PE guys don't seem to have it as easy as I expected (especially on late stage deals where even MM PE guys work late nights and weekends)

Array
Jul 21, 2011 - 1:01pm

Depends entirely on the firm. Some PE firms are highly supportive of work / life balance and clear out by 6-7pm. Others work you similar to banking hours. From what I've seen and heard, the bigger the fund the more hours worked, although this is not always the case.

CompBanker

Jul 21, 2011 - 1:02pm

I guess talking about larger MM PE funds ($5 billion+ total AUM or $1 billion+ per fund)

Array
Jul 21, 2011 - 1:03pm

Also think that it varies a lot. From my experience hours in PE are generally more cyclical even though that cyclicality can decrease a bit as fund size increases. That means that you can have IBD-like periods but then there will also be weeks when you can finish work at maybe 7-8pm. I think a big plus is that you are also a bit more flexible in planning your work and can shift it around personal appointments, etc - unless you are in a deal situation of course.

Jul 21, 2011 - 1:06pm

Like Khayembii said and in my experience, it's all dependent on deal activity and the firm you work for. I work with a smaller group (~10 guys), and during the winter we didn't see very many deals that we liked. During this time I was in at 9 am and out by 5 pm every day - no weekends. It was great. However, over the past month and currently, we have been working on a few deals simultaneously, and I've been in at 8am and out at 9pm - midnight + weekends quite frequently.

Jul 21, 2011 - 1:07pm

Based on my experience in the middle market (I don't think it's like this at the megafunds) at two different funds through my career is that, like everyone else has said, it depends on the firm and how many deals you're doing at once. There's less face time and there's less of a chance of someone throwing something on your desk at 7 or 8 pm and saying they need it by 8 am the next day and you know how many deals are happening and at what stage they are so even though you may still have 70 or 80 hour weeks, you know when they're coming so you can plan your life a little better.

Jul 21, 2011 - 1:08pm

Lifestyle at BB PE branch? vs. other PE? (Originally Posted: 05/02/2007)

In what ways does the lifestyle differ in the PE groups of BB (i.e.- GS Capital partners) vs. the lifestyle at a place like Carlyle or Texas Pacific Group?

Also, how different is the lifestyle at a smaller firm with a few hundred million or a couple billion under management?

I know "lifestyle" is vague, but I am generally wondering about hours, comp, job security, responsibility, and enjoyment of work.

Thanks guys.

Jul 21, 2011 - 1:11pm

My understanding is that the hours are brutal at pretty much any bb pe shop...the main difference between lifestyle in banking vs pe is that hours in pe are more predictable so it tends to be slightly more managable although not easy by any means

Jul 21, 2011 - 1:12pm

At the associate level, there is effectively no difference between working for TPG/Carlyle vs. GS Capital Partners. Pay and hours are almost identical, although recruiting can vary slightly. GS Capital Partners will, from time to time, recruit direct from undergrad - but this is rare, since most GS Cap candidates are drawn from the same pools as those for TPG/Carlyle.

Best Response
Jul 21, 2011 - 1:13pm

Life in PE when Things AREN'T Going According to Plan (Originally Posted: 01/17/2013)

On Tuesday, I wrote a post about life in PE when thing are going according to plan. My focus was to give everyone a general feel and a high level overview for what portfolio coverage is like since it takes up a great deal of your time as an Associate. And, let's face it, the health of the portfolio is the lifeblood of a fund. It not only determines the net worth of the partners over the course of five to seven years, it also determines the true longevity of a private equity firm.

If your portfolios perform well, your valuations will show it. The value creation will be evident and you'll probably look at a couple earlier-than-expected exits. And when it comes to raising a new fund, this goes a long way. Locking in solid returns with timely exits is an absolute boon for fund raising, both for bringing back existing investors, increasing their stakes, and attracting new LPs.

But, what if the portfolio isn't performing up to par? What are the implications?

What is life like at a private equity firm when things aren't going according to plan?

As with my post on Tuesday, this post is primarily concerned with life as an Associate in PE. The stresses of an underperforming fund on a more senior employee of a PE shop are far different. Having money tied up in an underperforming fund can cause massive stress and shows what it really means to have skin in the game, so to speak.

Having several friends who work(ed) at various PE funds throughout the country, I've gotten to hear a myriad of perspectives. I was fortunate to work for a fund that performed pretty well, without any massive hiccups. Others were not so fortunate.

Or were they?

Typically, firms have weekly meetings in which all of the Partners of the firm, along with the junior employees, meet to discuss the state of the portfolio and any new deals that are working their way through the pipeline.

When things are going well, these meetings are pretty straight forward. The Partners have a pep in their step and act as the rightful masters of the universe that they are. Things change quite a bit when companies start shitting the bed.

Tensions rise. Tempers flare. And while things are analyzed appropriately with facts taking precedence over emotional responses, it's hard to restrain frustration and hard feelings when so much money is at stake.

Now, the vast majority of the time, a company's poor performance doesn't happen overnight. Like a floundering relationship, the warning signs have been there for a while and it's been on a steady decline. You try and work through the problems, and sometimes you can. But, when you can't, that's when things get tough. And, unlike a relationship, you can't just break up and move on. You're stuck with the company until you either fix the problems, exit via a sale, or it's forced into some sort of bankruptcy process.

A friend of mine's fund had just such a company. It was an industrial services business that was crushed by the slow economic recovery and a slow but steady displacement of its technology. Over the course of six months to a year, the problems grew larger and larger. And their weekly firm-wide meetings grew more and more intense.

It started slowly, with the lead Partner on the coverage team putting the company's management team on notice. As things continued to erode, it led to weekly update calls. Before long, the banking group was starting to get nervous. This is where PE can really get interesting for an Associate. While it's definitely stressful and Partners are starting to lose their shit, an Associate can really dig into some unique stuff.

As the company continued to falter, my buddy got to work on some really interesting stuff. For one, he worked with a Partner and a search firm to find potential replacements for members of management. The management team was great during boom times, but seemingly impotent in dealing with the company's trouble areas. He was sent to work with the company on-site for weeks at a time, pitching in on just about any project he could. This meant getting his hands dirty in the real nitty-gritty details. Digging through the rawest financials imaginable to help better understand what areas management needed to focus on to right the ship.

With the banks' worries growing, it was up to the PE firm to work up a short-to-medium term action plan to restructure the business. This meant putting in additional equity and diluting returns, but it also gave the banks confidence that the fund was serious. The Associate worked alongside a group of turnaround consultants and the lead Partner on the coverage team to help put together a thorough turnaround plan for the banks. After several months of hard work and some time under the turnaround plan, the company's performance started to improve. While the return on equity will be diluted, it's still better than the alternative.

My friend who got to work on this company said it was among the best work he's ever been involved in. Challenging, interesting, and very unique amongst his peers. For a guy who wants to go to b-school, this ought to go a long way towards helping him craft some fantastic essays. It's also a great deal more interesting than my experience was. So, while you want to go to a winning fund, it's worth noting that a fund with challenged portfolio companies can lead to a unique and potent experience for an Associate.


Anyone on WSO get to work on any challenging portfolio companies? Anybody have any PE war stories they'd like to share? Or better yet, does anyone have any fun stories of Partners going wild when their companies start to shit the bed? Leave your thoughts and questions in the comments.

Jul 21, 2011 - 1:14pm

I'd love to hear from someone at a PE firm which has a debt desk who have thought about or executed debt purchases through their other desk, and not on the behalf of the portfolio company.

"After you work on Wall Street it’s a choice, would you rather work at McDonalds or on the sell-side? I would choose McDonalds over the sell-side.” - David Tepper
Jul 21, 2011 - 1:15pm

Oreos:
I'd love to hear from someone at a PE firm which has a debt desk who have thought about or executed debt purchases through their other desk, and not on the behalf of the portfolio company.

You mean a firm that bought some distressed debt and flipped it a short time later? If you're getting at that, I have a buddy who worked at a place that did that. His main focus was middle market buyouts, but as I recall, they made a monster return flipping some debt in like three months.

Jul 21, 2011 - 1:20pm

I agree with you that these kinds of experience must be really interesting (as long as you don't have any money in !).
That's why I'm looking for a turnaround consulting job and not generic MBB or IB/PE.

Jul 21, 2011 - 1:23pm

Thanks for posting this. I was just at a conference a couple days ago where one of the sessions was dedicated to how sponsors should deal with distressed portfolio companies, so this post is a very timely inbound.

Too late for second-guessing Too late to go back to sleep.
Jul 21, 2011 - 1:24pm

brandon st randy -

Glad you enjoyed. It's really a fascinating process and I do envy my buddy who got to live through it. It's also something that's going to happen to even the best-run funds, so it's the sort of thing everyone should think about.

Jul 21, 2011 - 1:28pm

TheKing:
The management team was great during boom times, but seemingly impotent in dealing with the company's trouble areas.
How strange! What a truly unusual and bizarre phenomenon. I have never heard of this happening before in my life.

No but really, in all seriousness, great thread (this and the one before). I'd love to see more like this.

Jul 21, 2011 - 1:29pm

prospie:
TheKing:
The management team was great during boom times, but seemingly impotent in dealing with the company's trouble areas.
How strange! What a truly unusual and bizarre phenomenon. I have never heard of this happening before in my life.

No but really, in all seriousness, great thread (this and the one before). I'd love to see more like this.

lol, thanks. I do think the site benefits from this sort of detailed discussion. I'm always bugged by people that have a fanatical obsession with something like banking or PE without really understanding what the job entails, so this sort of stuff is important.

Any topics that you would like to see covered more in depth? Anyone else have any ideas that they'd like to see fleshed out? I'm always interested in hearing ideas.

Jul 21, 2011 - 1:30pm

Just started in a PE firm in Asia so I'm not too involved with majority of the portfolio. However, one of the portfolio companies which was exited with an IPO ended up being plagued with accounting discrepancies. I heard that there was a huge scramble to salvage whatever they could and it was quite an adventure. Currently I'm tasked to work with one of the venture investments we made and I get to do some business development so it's pretty unique. The only downside is the time taken to do cold calls for business development purposes.

Not too sure about the general PE landscape in the Asia Pacific region, but it seems that owners here are less keen on leveraging and also prefer to keep the business to themselves which makes buyout level deals less common. Growth equity and mezz financing seem to be more popular.

One amazing story I've heard was from a relative who runs a REPE firm in China. He closed a JV deal for a new shopping mall in an upmarket district and was due to make the first tranche of payment. Two weeks prior to the payment, he visited the construction site and everything seemed to be in order; i.e. scaffoldings were up, heavy duty machinery brought in. The day that the cheque was sent out, he was visiting a nearby city to source another deal and decided to drop by the shopping mall and check out the progress. Astonishingly, the whole area was empty. Furthermore, the CEO of the other JV company couldn't be found. Needless to say, the cheque was immediately cancelled.

Jul 21, 2011 - 1:33pm

Did you have any experience of re-investing during down rounds or would there always be an exit if a portfolio company was facing an impending cash flow issue? This question might be for younger companies, or ones with multiple investors, than the situations you have described, but always great to hear another perspective. An insightful post, it is much appreciated by the younger generation of contributors here.

Play the long game - give back, help out, mentor - just don't ever forget where you came from. #Bootstrapped
Jul 21, 2011 - 1:37pm

Life in PE when Things are Going According to Plan (Originally Posted: 01/15/2013)

This week I thought I might do a little writing on my time in private equity. Specifically, I'd like to compare and contrast life in private equity when a fund's portfolio companies are performing well with life in PE when a fund's portfolio companies are performing poorly.

To be clear, I can only provide the perspective of an Associate, so I've never been in a position to have money tied up in a fund. I imagine the stresses of being a Partner are far different than those of a pre-MBA Associate, given that your net worth can change drastically based on whether or not your portfolio companies meet or beat their forecasts.

With that said, let's dive into today's post in which I'll focus on life as an Associate when one's portfolio companies are performing well.

Let me give some background to those among you who aren't as familiar with the way a private equity firm operates. When a newly minted Associate joins a PE shop, he / she is assigned a set of portfolio companies to cover. Generally, portfolio coverage revolves around the following responsibilities:

  • Monitoring financial performance - this entails receiving monthly financial statements and forecasts, digging into the details to understand what's driving growth and profitability, and identifying potential problem areas
  • Attending Board meetings - unless you're slammed with a new deal or attending to issues at another one of your coverage companies, you'll get to attend most quarterly Board meetings. Board meetings are a great way to get to know your management teams better and dive deep into strategic issues facing the company. Not to mention a decent meal on the company dime
  • Quarterly valuations - perhaps my least favorite part of PE, but a necessary evil. Once a quarter, you'll be tasked with updating a valuation of your coverage companies. This includes running a DCF, public comps, and precedent transaction analyses. The results of the valuation lead to potential write-ups or write-downs of a company's book value
  • Ad-hoc analysis and misc. projects - you'll occasionally have the opportunity to work on side projects with a company's management teams. This might entail running some numbers for the CFO or doing some market research
  • Evaluating and pursuing add-on acquisitions - you'll see plenty of potential add-on targets during your stint as an Associate, though few move beyond the early stages

Sounds like quite a bit of work, right? Well, the answer to that really depends on two things. How active are you pursuing add-ons and how well are your portfolio companies performing?

If you aren't actively pursuing add-on acquisitions and your portfolio companies are performing at or above their forecasts, then your coverage work will be fairly light and most of your time at work will be focused on new platform acquisitions. Your interaction with your portfolio companies will center around high-level coverage of financial performance, quarterly board meetings, and valuations.

Depending on your fund's strategy, you may find yourself actively pursuing add-on acquisitions for your coverage companies. This is especially true if the portfolio is performing well. I had the fortune of covering a group of healthy companies that were, for the most part, consistently meeting or beating their forecasts, so I spent a great deal of my time in coverage analyzing add-ons.

Frankly speaking, life when one's portfolio companies are healthy is somewhat boring from the perspective of the Associate. While it's certainly fun to attend upbeat Board meetings and work with Partners who are in high spirits every time a new set of financials rolls in, it gets routine. Companies living up to the hockey-stick projections they laid out in their CIM is great if you've got carry, but not so great if you're looking for a unique and challenging experience.

After you get a couple of deals under your belt, the work involved can become reasonably routine. You get a book, you build a model, you go through diligence, you hash out legal docs, and close. Obviously it's a lot of work, much of it is interesting, but it's still a fairly straightforward process. Yes, the companies you look at can vary a great deal in terms of their industry and business model, but the X's and O's of acquiring a healthy company remain the same.

So, what happens when your coverage companies aren't meeting expectations? That's where things can really get interesting. That's where tempers start to flare and routine processes start to go out the window. While I never had the (mis)fortune of covering a poorly performing company, I've got plenty of friends in the industry who have.

I'll cover some of their stories along with an overview of life in PE when a portfolio is underperforming in my post on Thursday.

Jul 21, 2011 - 1:38pm

Great post, very informative and detailed.

"For all the tribulations in our lives, for all the troubles that remain in the world, the decline of violence is an accomplishment we can savor, and an impetus to cherish the forces of civilization and enlightenment that made it possible."
Jul 21, 2011 - 1:43pm

Falcon:
Great post TK.

Out of curiosity, how many portfolio companies are you currently covering?

I'm not with the fund anymore, but I started out with three companies and ended up covering five by the time I was done (due to two platform acquisitions that I closed.) I also completed three add-on acquisitions. My companies performed quite well, so I had a pretty clean experience. I'm hoping to share some alternate experiences I've heard about through friends about what it's like when things aren't going so hot. While I don't envy some of the stresses they had to deal with, they definitely learned a ton.

Jul 21, 2011 - 1:40pm

Great post - I was always interested to hear more about the day-to-day life on the PE side.

Quarterly valuations - how much of this is BS? Your fund's investor statements depend on it, but is this a similar game to IB where an MD has a ballpark figure in mind for how much a company is worth and your DCF / comps / model are there to support it?

If you went to your boss and said "my quarterly valuation says the Company is now worth 2% less" would your boss say "no, run it again"?

How dramatic are the changes in valuation on a quarter to quarter basis? If you are using public comps I would imagine there could be some pretty wild fluctuations.

Jul 21, 2011 - 1:41pm

grosse:
Great post - I was always interested to hear more about the day-to-day life on the PE side.

Quarterly valuations - how much of this is BS? Your fund's investor statements depend on it, but is this a similar game to IB where an MD has a ballpark figure in mind for how much a company is worth and your DCF / comps / model are there to support it?

If you went to your boss and said "my quarterly valuation says the Company is now worth 2% less" would your boss say "no, run it again"?

How dramatic are the changes in valuation on a quarter to quarter basis? If you are using public comps I would imagine there could be some pretty wild fluctuations.

Yeah, I thought this sort of thing would be enlightening. So much focus is on PE at a high-level without a realization of what actually goes on at a nuts-and-bolts level.

Valuations are pretty thorough. Generally, you run the valuation, then get all your drafts together and have a meeting with the Partners. Valuations are discussed based on the output and how that reflects the reality of the company's performance. They can definitely swing from quarter to quarter due to public comps and (sometimes) precedent transactions that take place. The key is that they go out with written narratives and are discussed on a call with members of an Advisory Board.

All of the work in the valuations has a grounding in hard numbers along with a narrative. And, even though companies might fluctuate up or down a bit, it's important to remember that you're looking at an entire portfolio. So, even if a couple companies are lagging, the real winners of the portfolio can carry the day. That, and the fund's LPs know that a sale process will maximize value on exit. A well-run process can get you a valuation a good deal higher than what your valuation tells you. The CFO of my fund had stats on this, and it was something like companies tended to go for a 15% - 20% premium to our valuations of them (upon exit.)

Still, an important exercise because it keeps you on top of company performance and helps alert people to trouble areas and keeps Partners on their toes. It is, however, a giant pain in the ass, especially when you're really busy.

Jul 21, 2011 - 1:42pm

grosse:
Great post - I was always interested to hear more about the day-to-day life on the PE side.

Quarterly valuations - how much of this is BS? Your fund's investor statements depend on it, but is this a similar game to IB where an MD has a ballpark figure in mind for how much a company is worth and your DCF / comps / model are there to support it?

If you went to your boss and said "my quarterly valuation says the Company is now worth 2% less" would your boss say "no, run it again"?

How dramatic are the changes in valuation on a quarter to quarter basis? If you are using public comps I would imagine there could be some pretty wild fluctuations.

Quarterly valuations will be audited so this isn't an inconsequential banking exercise; methodology needs to be set/defensible and consistent between quarters. One major reason why a PE fund might want to fudge their unrealized gains is if they are already fund-raising for the next fund and want something to show for it but generally from my experience there isn't that much pressure to inflate unrealized gains as the goal is to have an accurate convergence towards your exit.

Jul 21, 2011 - 1:47pm

I'm assuming this is for an LBO shop?

How would this differ at a growth equity shop?

Super Nintendo, Sega Genesis - when I was dead broke man I couldn't picture this
Jul 21, 2011 - 1:50pm

idragmazda:
I'm assuming this is for an LBO shop?

How would this differ at a growth equity shop?

I can't speak from experience, but I imagine it's quite similar. The biggest difference would be how you go about evaluating companies you invest in and your expected goals for them. That, and the type and amount of ownership you take. In growth equity, your capital is used in large part for growth, whereas in buyouts you are simply taking control of the business and providing liquidity to the existing shareholders.

Note, though, that management teams in PE almost always retain some level of ownership post-close so as to align incentives with the PE fund.

Jul 21, 2011 - 1:49pm

angelinajolie:
Great post!! Could you share some perspective on the operations management stratigies you perform on any of your current projects?

You might have to elaborate a bit on what you mean. Unless you are asking about the mythical "operations" aspect of PE.

If you're referring to the misc. projects I mentioned in my post, these can include the following:

--Digging into internal financials to analyze the company's revenue and profitability on a product by product basis (digging in and looking for trends, etc.)
--Helping with modeling and analysis for refinancings
--Misc. financial analysis / competitive analysis

Most of the work you'll do with your portfolio companies outside of add-ons and the other things I listed above will be financial in nature. I'm sure there are some different examples out there from other people, but this is generally the case.

I'm always bugged by the myth of operations in PE. As an Associate in PE, your main job is to work on and complete acquisitions (new platform and add-ons.) The rest of your work revolves around monitoring portfolio companies, helping out with misc. projects like the ones I listed above, and fund administration (i.e. valuations.)

Let me know if you have any more specific questions.

Jul 21, 2011 - 1:55pm

Another great post from TheKing - thanks a ton for this.

Could you talk about what you would be doing in a leveraged (or other) recap situation? I don't know if these were common with your fund but it would certainly be enlightening to learn more.

Jul 21, 2011 - 1:56pm

Plato:
Another great post from TheKing - thanks a ton for this.

Could you talk about what you would be doing in a leveraged (or other) recap situation? I don't know if these were common with your fund but it would certainly be enlightening to learn more.

My fund didn't do much in the way of recaps. I presume you mean dividend recaps? My understanding is that you can only really pull that off if the portfolio company is absolutely blowing expectations out of the water, you're way ahead of plan, and you're looking to take some money off the table.

Someone else might be able to chime in on this one with more / better info.

Jul 21, 2011 - 2:02pm

Div Recaps are also a good option if you have want to extent the life of a weak/average investment. Even a mediocre investment will typically have achieved some debt paydown over 4/5 years. Often your Bond Docs/Bank Agreements will allow you to re-up to the original leverage level and take some money off the table. If not, you might want to refinance anyway given that bond markets are very hot now. Or Of course, you might just offer the lenders a waiver fee to let you take equity out.

If you think about it, if markets would be happy to let a new buyer re-leverage the business and let you take equity off the table; why would they be averse to you re-leveraging it yourself.

...of course, this is more true for larger investments, which typically would have better access to capital markets.

In terms of work for an associtate, it is similar to running the financing for a new deal. You will need a updated bank model/case and to do the negotiations etc. for new financing.

Jul 21, 2011 - 2:03pm

PZ87:
Div Recaps are also a good option if you have want to extent the life of a weak/average investment. Even a mediocre investment will typically have achieved some debt paydown over 4/5 years. Often your Bond Docs/Bank Agreements will allow you to re-up to the original leverage level and take some money off the table. If not, you might want to refinance anyway given that bond markets are very hot now. Or Of course, you might just offer the lenders a waiver fee to let you take equity out.

If you think about it, if markets would be happy to let a new buyer re-leverage the business and let you take equity off the table; why would they be averse to you re-leveraging it yourself.

...of course, this is more true for larger investments, which typically would have better access to capital markets.

In terms of work for an associtate, it is similar to running the financing for a new deal. You will need a updated bank model/case and to do the negotiations etc. for new financing.

Thanks for the insight. Do you happen to know where there are examples of models for this type of thing?

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