Private Equity Fund of Funds - Lifestyle

I've been thinking about career path a bit lately and have a question for you guys out there that know a bit about PE FOFs. Why would one want to move from a private equity role into a PE FOF? I realize there's a potentially better lifestyle, but there's also probably less money. I'm thinking more in terms of the interview question... if you go into a PE FOF interview from a PE role, how do you answer "why FOFs and not PE?" It seems like a tough question to answer. What are your thoughts?

 

Also, if anyone has experience at a PE FOF could you walk me through what it's like? It's obviously different from place to place, but what type of work do you do at the mid-level (say, Sr. Associate/Junior VP)? What's compensation like at a $5B PE FOF? What's the work-life balance like?

Thanks guys.

 
Best Response

Type of work: Like what many said above, the work will depend on what kind of fund you are at, e.g. the mix among primaries, secondary, and co-investments that your fund does. If you are at one that does all three, then I would say the majority of your time would be spent doing primary fund investments, meaning that you will be meeting plenty of fund managers and deciding whether to invest in their fund. This work is very qualitative as you are essentially just looking at the manager's track record, strategy, etc. You will also spend a decent amount of time working on secondary investments, which is what it sounds like: creating a secondary market for primary fund investments. For example, if FoF A invested $50mm in Carlyle Partners V but wanted to get rid of their investment, you (FoF B) can come in and buy that commitment ($50mm) from them as a discount (or at a premium, back in the day). This type of work will involve bottom up analysis on the companies that Carlyle has already bought and is very modeling intensive - quick and dirty LBO's on EACH company. Also, if Carlyle's fund is not fully invested, you also have to value the portion of its fund that is uninvested, usually this means assuming X% of the unfunded portion will eventually be invested and return Y%. Finally, you will spend some time doing co-investments. IMO, this is the most exciting part, especially if you come from a traditional PE background. You don't source for deals, rather PE firms come to you and ask if you want to invest alongside with them. You essentially do the same analysis that a PE firm does.

At the senior associate / junior vp level, you are probably too junior to source potential investments, but you do a lot of project management. For each investment, you monitor the analysts' work, and are responsible for a presentable copy of the investment pitch to the IC or for your VP to review. You are also talking to people a lot, whether it be doing due diligence calls, or attending an annual investors conference to get an update on the funds that you are invested in.

Can't comment on compensation.

Work-life balance: At the analyst level, the hours still can get long if you're fund is busy - think 8:30 to midnight-ish. At the associate level, its slightly better, leave around 9 or 10. However, this is specific to my fund - I know it varies a lot so take it with a grain of salt.

Hope this helped. Sorry if it is unorganized and I rambled.

 

I don't have a fantastic answer to your question, but I can give you some partial insight. Last year at our annual L.P. conference I was talking to a junior/mid-level person at a FoF about her job. She said that she is given responsibility for about 4-5 different funds to monitor. This generally means attending their annual meetings and doing a write-up afterwards. She also tracks the funds for any major changes in valuations of portfolio companies, new investments, as well as major changes at the actual PE shop.

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jimbrowngoU:

Any idea what the difference is between a PE FOF and the PE FOF group at a large endowment?

Largely the same most likely, in terms of process. The endowment is likely to have a smaller team, but ironically a bit less hours, but also less comp. Also the PE fund investments will be one portion of the endowment's overall portfolio, which could consist of many assest classes, so any private equity funds that are considered would presumably be evaluated in the context of the endowment's overall portfolio, unique investor constraints, any cash flow requirements based on spending needs, etc. Also keep in mind that as an endowment it wouldn't have to deal with clients in the traditional sense since its capital largely comes from donations, etc.

 

I'd echo the same sentiments as everyone else - it's a lot of qualitative analysis for primary investing, a bit more quantitative for secondary/direct investments, but not the same level as direct PE. Lifestyle was pretty good, average 50-55 hours a week at the analyst position at the shop I was at.

1) Fund raising: not only are you dependent on your own fund raising (raising a FoF), but also obviously timing of when funds come to market if you're a primary investor. 2) Increasing sophistication of institutional investors: more and more are allocating to PE funds directly. What's your value add if I give you money and you just give it to Carlyle/Blackstone? 3) Lack of technical skill set development at junior levels 4) Less compensation (obviously)

 

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