Private Equity Operating Partners v General Partners

General Partners are the PE guys who make the investment decisions, operating partners are the guys who go into the portfolio companies and make all of the strategic decisions - think KKR Capstone.

From my understanding operating partners are often ex MBB (consulting) guys or industry executives, and general partners are ex IBD.

What are the compensation differences?
Can a partner easily move between the two roles and are some partners involved in both roles?
What are the exit options for operating partners?
Is the recruitment process for operating partners similar to the rest of PE but from MBB?
Do most or all of the private equity funds have operating partners?

I don't think this topic has ever taken off on WSO so it would be good to get a detailed discussion on operating partners and how to break into PE on the strategy side v the investment side.

Thanks,

10kentoo

Comments (12)

Dec 12, 2014

I'll try to answer some, but you should realize that GP refers to a management company, which itself has partners (i.e. the head honchos/investment/deal guys). The GP also has operating partners, which you describe somewhat accurately above. Operating partners tend to be older, experienced industry guys (think ex-CEO's, usually not MBB because they need to know how to actually run a company. Check out this list for a sense: http://www.atlasholdingsllc.com/about/team.aspx) who are close to retired but aren't against collecting a fat check to share their experience in a relevant deal.

"What are the compensation differences?"

Not sure about this, but my gut says that the partners (the investment guys) at the GP are going to make more than the operating partners at the GP. Operating partners can run the gamut from being more consultants/advisors on specific deals to being integral to the firm, but generally a partner at the GP is going to make more than an operating partner since an operating partner isn't really a true owner of the GP (unlike the partners). Usually it's closer to the former.

"Can a partner easily move between the two roles and are some partners involved in both roles?"

Gut sense: no, yes (but usually no - see my characterization of who they typically are for why).

"What are the exit options for operating partners?"

Being an operating partner isn't used as a stepping stone to another position. It's more or less the end of the road, so these aren't really "exits", but some get called in to run companies as C-level execs, board members... or they just retire.

"Is the recruitment process for operating partners similar to the rest of PE but from MBB?"

No, see above.

"Do most or all of the private equity funds have operating partners?"

No - sometimes they just engage relevant individuals on an as needed basis (i.e., similar role to operating partners except it's not as formalized).

Dec 14, 2014
Dec 14, 2014

It's two totally different skillsets and attracts two totally different types of people. The reason this discussion has never "taken off" is that comparing the two is kind of inane. That said, CHItizen has laid it out pretty well.

Dec 15, 2014

Thanks for all the replies guys, CHltizen you have outlined everything really well, I appreciate that and
doyouevenlift I will take a look at that report now.

Thanks again.

Jul 30, 2015

I thought operating teams at PE shops had folks at different experience levels - from the 'Experts' close to retirement (as someone pointed out) to the manager level from MBB.
Or is it just really senior guys/gals?

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Jul 30, 2015

The following is based on what I had observed and may or may not be correct.

  1. The investment side generally earns more than the operating side. On the other hand, the benefit of being on the operating side is that usually you are tagged to a certain amount of portfolio companies and you will be able to get your carry much earlier (as your performance is based off these portfolio companies and they will get sold much earlier before the fund life ends) than the investment side (who usually gets it at the end).
  2. The operating partners do share their opinions on business models but they are generally not involved in the day to day work and i had never seen anyone transfer in between the 2 roles.
  3. The exit ops is usually for the operating partners to take on more portfolio companies / stay in PE ops or other ops role.
  4. Similar to what CHITizen had mentioned, ops partners are usually from some MNC management team e.g. CEO. On a side note, they are the ones implementing changes and not just coming out with a cookie cutter plan and thus I guess they dont really like the consultants.
  5. I would say generally larger funds will have ops partners for managing their portfolio companies and for a better story when its time for fund raising. For smaller funds, the investment guy will also take on the ops role as well. On a side note, it seems like LBO funds tend to have more ops partners than growth equity funds.
Jul 30, 2015

We have 5 operating partners, all of whom were former CEOs (mostly from former portfolio companies). They usually serve as Chairman on any boards they sit on, otherwise they are just board members. Some are more proactive than others - while some serve as merely consultants, others are actively working with management on everything from budgets, to overall strategy and business decisions. They are compensated through the fund as employees and through the portfolio companies as board members. In addition they are offered carry (usually fairly small amounts but one of our more active and tenured OP's has a significant amount) and co-invest opportunities. In terms of their heirarchy, they are regarded as partner-level, our principals answer to them and so do we as associates. They can and do (but not too often) make demands for analysis to be done or generate big ideas that may require work from the investment professionals. Usually, the more active the OP is in the companies, the more likely he is to be Chairman, create work for the investment team, and subsequently contribute more and receive more carry in the fund.

Jul 30, 2015

Excellent and articulate response - thank you so much.

A couple follow-up questions if you don't mind:

1) Are these guys generally full-time and working hard, or is this more of a gig for folks who are semi-retired? It sounds more like the latter, correct?

2) Is this often something that CEO/top level manager types do in between jobs? i.e. they successfully exit a company, and while waiting around for the next one to run, they become an OP?

3) When you mention they are partner-level in the heirarchy -- are they still a notch below General Partners who make investment decisions? Do they report to GPs? Do they play any role in investment decisions and analysis of new opportunities?

Jul 30, 2015

Generally the operating partners are past the prime of their careers and are looking for jobs that allow them the flexibility to work less than full time on an aggregate basis. Even our most involved operating partner works less than 40 hours a week and lives in another city. There have been instances of operating partners temporarily stepping into the role of CEO of portfolio companies, but only for a short time. But I would say it's safe to say that none of the operating partners will ever become full-time CEO's again.

Operating partners are considered partners on par with our managing partners, they do not answer to anyone, really. How involved they are in investment decisions are up to them. If we have an investment that concerns their areas of expertise, we will involve them as much as they feel the need to be involved and they will probably sign off on the decision, while other OP's may be heavily involved from the beginning.

May 28, 2018
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