Private Equity: why it's so sexy

Investar's picture
Rank: Monkey | 34

I am sure many of the WSO readers are well aware of an analyst's dream paths from a BB to a large leveraged buyout shop like KKR. But I am curious to see why you think that PE is or is not all it is hyped to be. Brutal honesty is greatly appreciated.

Comments (147)

May 24, 2010

More money, more prestige, buy side.

May 25, 2010
mas1987:

More money. More prestige. Buy side. Obsession, Calvin Klein.

May 25, 2010

lol, shit, wish I'd thought of that.

May 25, 2010

^ i am confused, what's the joke?

i have the obsession cologne, don't like it very much though

May 25, 2010

The joke is what I said (More money, more prestige, buy side) sounds like an ad (apparently for Obsession, by Calvin Klein)

More money, more prestige, buy side. Obsession, by Calvin Klein

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May 25, 2010

oo get it

May 25, 2010
May 25, 2010
h.e.pennypacker:

http://www.youtube.com/watch?v=FZOGWSk8sx0
16 sec. mark.

So they talk about cologne at the 16 second mark, big whoop wanna fight about it?

May 26, 2010

Prestige Worlwide...wide..wide..wide

Jun 3, 2010

Everyone wants to do it. Not everyone can.

Jun 3, 2010

I think you can easily find the answer if you search a bit.

-better hours
-better pay
-more interesting work

Jun 3, 2010

The good places pay more than banking. The 2 and 20 fee structure is pretty compelling in terms of compensation, but on average, most PE places suck. Most funds are structured at 2% management fee and 20% carry on top of an 8% preferred return, but considering that on average PE funds do not outperform the market, you really need to be at a good shop to see significant pay increase.

The work is more interesting, though.

Jun 3, 2010
hiit:

Most funds are structured at 2% management fee and 20% carry on top of an 8% preferred return, but considering that on average PE funds do not outperform the market, you really need to be at a good shop to see significant pay increase.

Yep, you gotta hit that pref. That's harder to do nowadays because you can't leverage up 3:1 like you could pre-2007.

But investing in good businesses is still the most lucrative and interesting thing you can do in any economy.

man made the money, money never made the man

Jun 3, 2010

You go from being being someone rendering a service to being an active owner with direct skin in the game.

Jun 3, 2010

thanks for the insight!

Jun 3, 2010

For some reason laughed real hard reading this

    • 1
Jun 3, 2010

In my opinion, a key aspect of the allure of PE is the idea that private equity professionals possess considerable intellectual capital, which they use to develop and implement novel levers to "create value". I am interested in pursuing a career in PE, but I am under no such delusion of grandeur. The private equity business model is actually pretty simple. Hire a banker or business development intermediary to help you source deals/win auctions (the idea of "proprietary deals" is, for the most part, bullshit). Lever a company with predictable free cash flows to the fucking hilt, which is obviously a huge driver of returns. Hire a new management time and/or an operating partner. Do some add-on acquisitions and pick the low-hanging margin expansion opportunities, and voila!

    • 1
Jun 3, 2010

Cool story bro

Jun 3, 2010

Private Equity as a cradle-to-grave career is a pretty new concept. There's much to consider as a 24-year old just entering the industry. PE firms often hire the same sort of people -- investment bankers and analysts.

David Wilson
Criminal Defense Lawyer Indio
Personal Injury Lawyer Indio
http://cabreralawoffices.com/

Jun 3, 2010

Congrats OP......I believe you are now officially the worst poster on WSO.

    • 3
Jun 3, 2010
Forward_Trousers:

All thought expressed is my own.

I for one am very glad you didn't plagiarize any of this

Jun 3, 2010

We are all dumber having read this vomit. Son, what in the HELL are you talking about?

Jun 3, 2010

"...such as what if you bought one company and you found out that the CEO was using the company's money to pay for his mistresses home (and had a child with her)."

I can't tell you how many times our accountants missed this doing their QofE...

...hahahaha

    • 1
Jun 3, 2010

wtf did i just read

Jun 3, 2010
Forward_Trousers:

I am using this post to organize my thought.

Not so sure you succeeded.

That, or this is truly excellent satire

Jun 3, 2010
Forward_Trousers:

I am using this post to organize my thought. All thought expressed is my own.

This is good to know. I was worried for a second.

Jun 3, 2010

One of the better troll posts in recent memory. This guy needs to write the foreword to the next WSO private equity guide. Can start by saying how CEOs often have mistresses and how you can find things in a warehouse that you never dreamed of.

Jun 3, 2010

Warehouses are actually ideal for mistress storage.

    • 1
Jun 3, 2010

Stay safe and please remember to wear your helmet before venturing outside today. The medication tends to invoke a false sense of confidence. Good luck bud.

Incoming Ash Ketchum, Pokemon Master
Literally a problem, solve for both X and Y, please and thank you.
Hugh Myron: "Are there any guides on here for getting a top girlfriend? Think banker/lawyer/doctor. I really don't want to go mid-tier"

Jun 3, 2010

Man, you got lambasted. I get your main points and your enthusiasm. There is something wonderful about having your hand on the tiller and that COUPLED WITH limited personal financial exposure is the attraction of PE for many.

    • 1
Jun 3, 2010

If there was ever a guide on "How Not to Write a Thread" this thread would be the perfect example.

You know you've been working too hard when you stop dreaming about bottles of champagne and hordes of naked women, and start dreaming about conditional formatting and circular references.

Jun 3, 2010

This is up there with every thread ever made by lookatmycock and VikrumBandit. Still not on blumie's level, though.

Jun 3, 2010

LOL^infinity ..thanks for the wisdom

Jun 3, 2010

Why did I read this?

Jun 3, 2010

Best troll post ever.
Pretty sure this is artificial intelligence at work. DeepMind or some shit. Google's trying to test how convincing its AI is as a human on a forum, and using the responses as a gauge, using keyword searches of "wtf", "stupid", and "troll".
Skynet. It's real.

Jun 3, 2010

This thread is the worst thing since apartheid.

Jun 3, 2010

Thanks, how long do you think it will last?

  • Slams

...

Jun 3, 2010

As on of our GPs says "for every fund you are a GP in (these roll every 3 to 5 years assuming performance is ok or better) another generation down will never have to work a day in their life." Retiring at 45 knowing your children's children will never have to work a day in their lives is the allure of PE.

Jun 3, 2010

cocaine

Jun 3, 2010

loose women

Jun 3, 2010

peer preasure

Jun 3, 2010

The ability to spell "pressure"

    • 1
Jun 3, 2010
bullmetaljacket:

The ability to spell "pressure"

so that's where the paper clip guy from ms word went. how have you been? can't say i missed you.

Jun 3, 2010

because i'll have more time to "preasure" myself in the bathroom

    • 1
Jun 3, 2010

it is a little bizarre to take a job you know you'll hate just to get another job you have no idea if you'll like.

Jun 3, 2010
Jimbo:

it is a little bizarre to take a job you know you'll hate just to get another job you have no idea if you'll like.

Lol. Very well put Jim.

Jun 3, 2010

it's all about the money, peer presurre and keepin g up wiht the joneses.

Jun 3, 2010

I have read many threads on this, and what I have gathered (novice speaking) is that the comp and hours are comparable to banking at the junior levels, but having pre-mba PE experience is what gets you into the mega funds like KKR and Blackstone, which, again, right out of MBA is comparable comp and hours. The big difference is at the more senior levels where carry comes into play, where senior guys make 10s to 100s of millions where an MD or Director in banking will make $1-5MM in a good year.

Please correct me if I am wrong.

Jun 3, 2010

In ib you work as a service
In PE you make actionable investment decisions

Jun 3, 2010
ambione:

In ib you work as a service
In PE you make actionable investment decisions

Only the MD's or Partners make actionable investment decisions. Everyone below them is still just a monkey.

Jun 3, 2010

I would agree with Ambione. It's investment vs transactions.
Investment, management, portfolio, exit, etc... VS. Clients, advisory, ...

Jun 3, 2010

if you like being the one steering, actually seeing your recommendations seeing light and follow them through, pe's the thing. all previous posts taken into account of course.

"... then, lobbest thou thy Holy Hand Grenade of Antioch towards thy foe, who, being naughty in My sight, shall snuff it."

Jun 3, 2010

Its the combination of portfolio company operations as well as financing that makes PE attractive to me. As a senior guy at a PE firm you are much more highly involved on the operations side of the business, as apposed to no operations say in IB.

Jun 3, 2010
Boutique Banking:

Its the combination of portfolio company operations as well as financing that makes PE attractive to me. As a senior guy at a PE firm you are much more highly involved on the operations side of the business, as apposed to no operations say in IB.

For me it's the exact opposite. I would much prefer to stay out of PE and rather work in a L/S or global macro HF so I don't have to argue with management. Still, I can see how that can be really attractive to some people.

Jun 3, 2010

You wouldn't have to argue with management if you fired them and put in your own minions... muhaha *evil laughter.

Jun 3, 2010

It sounds to me that a few people in this thread think that if you are in PE that you get deep into running a portco. Maybe at the highest level, if you are a partner you might help make some decisions, or if you are an operating partner brought on solely for that purpose (to work with portcos), but life at the junior level is far different. It might be on the buy side, but it's still a transaction-oriented business. Don't get the wrong idea and think that being a PE associate makes you some sort of kingpin.

Jun 3, 2010
TheKing:

It sounds to me that a few people in this thread think that if you are in PE that you get deep into running a portco. Maybe at the highest level, if you are a partner you might help make some decisions, or if you are an operating partner brought on solely for that purpose (to work with portcos), but life at the junior level is far different. It might be on the buy side, but it's still a transaction-oriented business. Don't get the wrong idea and think that being a PE associate makes you some sort of kingpin.

This is correct if you work at a Blackstone/KKR type place. If you really feel passionate about PE and want the exposure to management/operations level issues you can go to a smaller fund. I'm not saying your running portcos at age 30, but after a few years you will get decent exposure.

Jun 3, 2010
TheKing:

It sounds to me that a few people in this thread think that if you are in PE that you get deep into running a portco. Maybe at the highest level, if you are a partner you might help make some decisions, or if you are an operating partner brought on solely for that purpose (to work with portcos), but life at the junior level is far different. It might be on the buy side, but it's still a transaction-oriented business. Don't get the wrong idea and think that being a PE associate makes you some sort of kingpin.

This is completely correct...most of the time. I know that there is a Blackstone PE third-year analyst who's been on the Board of Directors of one of their portfolio companies (Financial Guaranty Insurance Company) since his second year on the job. Look it up if you don't believe me.

Jun 3, 2010

TheKing is correct. Only at the MD level will you be sitting on Boards of Directors or making big hiring and firing decisions at portfolio companies. Also, to address the initial point, while in good times the "home run fund" in PE may yield significantly more compensation than a good bonus for an Ibanker, the pay is [generally] not quite as different as people tend to think. Carried interest is great but most funds do not pay carry until after they earn 8-10% annual returns over the life of the fund. In other words, many funds raised in the past few years will probably never reach the carried interest level. Then, the salaries (for several years) come only out of the 2% (generally) management fee and with all of the limited partners( same as operating partners TheKing alluded to) the numbers are not as astronomical as you may think. Because, think what else comes out of that 2% (flights to and from meetings, company overhead, secretaries, technological infrastructure, other support employees). If your fund does not hit the carry mark your comp will resemble that of banking, possibly even less.

Jun 3, 2010
cheese86:

TheKing is correct. Only at the MD level will you be sitting on Boards of Directors or making big hiring and firing decisions at portfolio companies. Also, to address the initial point, while in good times the "home run fund" in PE may yield significantly more compensation than a good bonus for an Ibanker, the pay is [generally] not quite as different as people tend to think. Carried interest is great but most funds do not pay carry until after they earn 8-10% annual returns over the life of the fund. In other words, many funds raised in the past few years will probably never reach the carried interest level. Then, the salaries (for several years) come only out of the 2% (generally) management fee and with all of the limited partners( same as operating partners TheKing alluded to) the numbers are not as astronomical as you may think. Because, think what else comes out of that 2% (flights to and from meetings, company overhead, secretaries, technological infrastructure, other support employees). If your fund does not hit the carry mark your comp will resemble that of banking, possibly even less.

The industry has about 4,000 investment professionals (deal team) and accounts for 5% of the world's billionaires, the compensation in PE is on average MUCH HIGHER than banking

Jun 3, 2010

I think it boils down to the hours/similar pay. You think people would be jumping ship if you were working banking hours?

I used to be interested in the normal PE path, but since having started banking, I realized PE is not that different, or terribly interesting to me.

Who knows

Jun 3, 2010

Agree with all of the above. I'd also note that most PE shops take transaction fees from their deals which also contributes to bottom line comp (or on top of the 2% management fee).

To caveat, I think my PE experience has been different than most but here is my 2 cents. I've found the work to be much more interesting. The bigger shops are definitely transaction geared for the junior folk but the smaller shops will offer a much more hands on experience (not just 'deal making' but active in operational enhancements, developing relationships with portco management, etc.) It also depends on how the PE shop runs its business; some have clear delineation between origination and portfolio management, some blur the lines, and some will require people to do both. I've pulled the long hours in both PE and banking -- i've never wanted to kill myself PE. The long nights were actually interesting and of substance, not just running edits/re-running sensitivities, etc.

Jun 3, 2010
HerSerendipity:

Agree with all of the above. I'd also note that most PE shops take transaction fees from their deals which also contributes to bottom line comp (or on top of the 2% management fee).

To caveat, I think my PE experience has been different than most but here is my 2 cents. I've found the work to be much more interesting. The bigger shops are definitely transaction geared for the junior folk but the smaller shops will offer a much more hands on experience (not just 'deal making' but active in operational enhancements, developing relationships with portco management, etc.) It also depends on how the PE shop runs its business; some have clear delineation between origination and portfolio management, some blur the lines, and some will require people to do both. I've pulled the long hours in both PE and banking -- i've never wanted to kill myself PE. The long nights were actually interesting and of substance, not just running edits/re-running sensitivities, etc.

You make some good points. What I was alluding to is that people need be realistic. You aren't going to be some Xerxes-level God King.

If you want to run a business, start a business.

Jun 3, 2010

what is a portco?

Jun 3, 2010
TheHungryOne:

what is a portco?

portfolio company

Jun 3, 2010

Is Small/Medium PE --> Portco done much? I'm not talking joining the portco as CEO, but perhaps going from a PE associate to some sort of financial analyst for a small portco? This would be for people who want to be closer to operations for a "real" company after working in financial services/PE for a while.

Jun 3, 2010

Happens quite frequently at my shop. Some associates decide that they would like to gain some operational experience prior to going to b-school, others decide PE isn't for them and join the port co.

Jun 3, 2010

Good to hear, thanks CompBanker

Jun 3, 2010

I'm going to respectfully disagree (and shed a tear for) commentors that are stating that Associates at PE firm's are transaction-oriented monkey's with no involvement with the Portfolio Company. If you have managed to land yourself at such a firm, 1) That sucks and 2) Run. For me, the pure draw of PE is the ability to interact with various Portfolio Companies and gain operational experience that informs your investment strategy. My experience is solely in the middle market, however, and I know very few people at the mega-shops, so I can't speak to that experience. However, given the small sizes of most mid-market firms, I'm not even sure how work would be divided if junior professionals were treated like pitch-bitches. To me, 'PE is so great' because you get to think like an investor by trying to learn as much as possible about how to run a good company with healthy cash flows. If you're not doing this, seriously, find a new firm.

Jun 3, 2010

I work at a large middle-market private equity firm where responsibilities at the junior level are quite transaction-oriented, and my involvement with portfolio companies has been quite minimal. I moved from sell-side to private equity with the aspirations of learning more about strategy and operations, and while there are definitely shops where you can do that, I generally believe that at larger shops, the role is more transaction-oriented in nature. I do think the work-life balance in PE is better than in banking, but for me, what I've realized after spending five years in finance is that it's still a grind and I personally see myself as someone that's more interested in strategy and management. That's why I'm going to get my MBA in fall of 2010 and hopefully move into strategy consulting, business development, or something like that.

Anyway, there are a lot of great things about PE, especially if you love the deal business and investing. For me, I realized that I didn't live and breathe it the way the senior people did, and like most careers, it's best to be really passionate about what you do in order to get ahead. For me, I just have realized that my cup of tea is something different. You all should find your own paths and don't worry about drifting from the crowd. I know that sometimes hard to do since most people in investment banking just tend to follow a "path", whether that's the best for them or not. But in any case I wanted to echo the sentiments of most others on this thread, namely that if you're really interested in portfolio company work and long-term business planning and improvement, your involvement with such work in PE will be fairly limited at least until you become VP or above -- and even then, you're just sitting on the board providing oversight. It'll be the management teams of the companies, or your firm's operating partners, that are making the real decisions about strategic improvements.

Hope that sheds some light on how many typical PE shops work (though there are always exceptions to the rule).

Jun 3, 2010

The past 4+ years have been an interesting time to be a part of the PE industry. As you can imagine, what is so great about PE has changed significantly over the past 18 months.

Pre-crash: deal flow was robust, CIMs flowed across my desk like manna from heaven, CMBS debt was abundant, leverage levels were ridiculous, everyone and his mother wanted in, closing dinners/celebratory lunches/black tie charity events were frequent, hours weren't so bad 60-80 depending on the deal cycle

Then came the storm, credit dried up, everyone panicked and portfolio companies went into survival mode

We cut the sht out of companies, tried our best to renegotiate terms and do the best we could with the little slack we had. In several instances, we suffered BKs but our remaining portfolio companies came out surprisingly healthy.

I enjoy the network and relationships that I have been able to build over the years through exposure to our portco management teams, limiteds, bankers, lawyers, etc. I love the granular perspective from which I get to review our portcos and I appreciate the fact that even from day 1 I have been exposed to all aspects of the deal cycle and the closed door negotiations. The hierarchy at my shop is very flat and my superiors are generally offended if I refer to them as anything other than friends or colleagues.

The best part of PE = carried interest and culture. Carried interest creates a culture that is aligned. Because PE shops generally run quite lean, managers are able to augment and cultivate a culture of camaraderie and teamwork. I enjoy coming to work everyday because I care about the people I work with, they care about me and we are all working toward a common goal.

Jun 3, 2010

How about working hours in a small or MM sized fund?

Jun 3, 2010

I don't know what the fuck you guys are talking about. I've worked quite a bit with one mega fund in particular and the amount of responsibility JR team members take on is astounding.

Case in point, an associate,principal and founding partner are leading an acquisition at X top mega fund... associate single handedly makes the call to up the bid by 10-20% ($1-2B). A year and a half later, I cross paths with the Associate again... he's a principal and sitting on the BOD of one of their PortCo's. This obviously varies with the degree of BSDness possessed by JR team members and firm culture, but it seems everyone is making blanket statements and I've personally seen that is just not always the case. Another associate was leading an investment bid with another one of the founding partners... calling some pretty important shots.

Jun 3, 2010
Marcus_Halberstram:

I don't know what the fuck you guys are talking about. I've worked quite a bit with one mega fund in particular and the amount of responsibility JR team members take on is astounding.

Case in point, an associate,principal and founding partner are leading an acquisition at X top mega fund... associate single handedly makes the call to up the bid by 10-20% ($1-2B). A year and a half later, I cross paths with the Associate again... he's a principal and sitting on the BOD of one of their PortCo's. This obviously varies with the degree of BSDness possessed by JR team members and firm culture, but it seems everyone is making blanket statements and I've personally seen that is just not always the case. Another associate was leading an investment bid with another one of the founding partners... calling some pretty important shots.

apollo mgmt? mb cerberus?

this is not common at large private equity firms

Jun 3, 2010

Take Cheese's point one-step further. If you do not have a good return in your fund you will not be raising another one. The 2% is to cover expenses including a good salary for all employees. You are crazy to think you will make bank off that 2%.

Jun 3, 2010
TheKing:

You make some good points. What I was alluding to is that people need be realistic. You aren't going to be some Xerxes-level God King.
If you want to run a business, start a business.

Would working in PE provide the training/operational experience to start your own business / buy out someone else's failing business and turn it around? I'm thinking smaller businesses worth anywhere from $2-5mm.

My name is Nicky, but you can call me Dre.

Best Response
Jun 3, 2010

I did 3 years of banking as an analyst and then spent several years as an associate at a large MM PE shop. I absolutely hated my life in banking for all of the reasons everyone hates it - constant pitches, dick MDs, power naps in the bathroom stall, etc. When I made the move to PE, I was much happier for the following reasons (note that not all PE funds are created equal and many still have the ibank mentality with long hours, face time, "busy" work, etc.. Also i'm writing from the perspective of an associate):

  • Hours are better. Not 9-5 but when you've spent 3 years coming home everyday after 11pm, working 60-80 hour weeks feels short.
  • Culture is much better - not as much "busy" work... meaning making sure a deal is a real deal before spending a significant amount of time on it... (vs. in banking, building a model for every damn pitch). Also, when I was in banking, face time was a pain in the ass. I don't think there is any business where you don't have to deal with face time, but I think in PE it is generally more lax.
  • Relationship building. In working in PE, you will build relationships with CEOs, CFOs, COOs, directors of corporations, at the target, when/if you hire a third party advisor and at your portfolio companies. I value this because when/if I ever decide to leave PE, these are some of my exit opportunities. For example, I worked extremely well with the interim CFO of a target company. After he left and went to another business, he asked me to come on as VP finance.
  • Pay is great. I'm not sure about the 2% management fee ppl were quoting above - from my experience, PE funds need to pay back 2% management fees (which are collected to pay salaries/cash bonuses and other expenses related to running the fund)... Meaning when you exit an investment, the carry % is calculated from a total purchase price that is net of accrued management fees across all portfolio companies. Anyway, this probably doesn't apply to associates at most funds since there is no carry at junior levels, but a good exit could mean a payout of $500K-$1M at the VP level (much higher for partners obviously).
  • Working with portfolio companies post close is great. I enjoy taking part in strategy sessions and board meetings and working actively with management teams to improve businesses. This combined with the next bullet are two things I think that really prepare you for anything, whether it's a consulting role in the future or starting your own business.
  • Knowledge learned is much more interesting and valuable. Admittedly at the associate level, you're still doing a lot of work an analyst does in banking (models, presentations, memos) but you're also spending more time learning about different businesses, industries and most importantly what makes a business successful. Even at the senior levels, I don't think bankers generally have a solid grasp of how a business is run. This isn't their fault - they are just the middle man in an M&A deal and don't need to dig as much into the details. In PE, you're literally working hand in hand with management teams to learn everything you can about the business and build a valuation model to come up with the right bid price and investment thesis. The bottom line is when taking a deal to investment committee, you better damn well know the business inside out, know every potential risk and mitigant, and be able to answer any question the committee asks... even as an associate.. because if the committee asks the deal lead a question he cant answer, he'll look to you for help. I think this is what I love most about PE... being able to learn about all sorts of different businesses and business models...now with all of the deals I've worked on, I can go into a meeting with any management team and have an intelligent conversation around how they run their business. The carry, pay, prestige, it's great, but what really keeps me here and continually interested is this.
    • 6
Jun 3, 2010

Great post PEguy. Very informative and sounds like a very interesting field to work in with a plethora of varied experiences. +1.

My name is Nicky, but you can call me Dre.

Jun 3, 2010

9 to 7 or 9 to midnight... hahaha that's great. Try more like "as needed". It can be slow at times, primarily between funds. However, you better be able to ramp up quickly and work on little to no sleep.

Best of luck.

Jun 3, 2010

? What do you mean which side of PE?

Jun 3, 2010

real estate, dabbling in distressed securities, lbo

Jun 3, 2010

real estate PE is a totally different animnal....that is not what we're talkigna bout on here

distressed securities funds usually use leverage to buyout their portfolio companies, so that's still LBO. it's just more of a specialized niche, in the same sense that there are PE firms that specialize in consumer goods companies or whatever

Jun 3, 2010

leverage is irrelevant. PE is still PE without it (e.g. growth capital, minority participations...)

to use a poker analogy, PE investor are tight players, HF use a more loose, gambling strategy. HF may be a bit more exciting, but also more dangerous. Both strategies should make money in the long run, so you need to find the one that fits you the best.

do not be the sucker at the table though... (e.g. retail investors...)

Jun 3, 2010

Use the search function...this topic has been described in depth by myself and others.

Day consists of reading OMs, tweaking portfolio operating models, talking to your bankers/consultants/counsel, talking to management of potential acquisition targets, building lbo models, etc.

Jun 3, 2010

Well I'm currently not in banking. I would say at least speaking for my self, that PE offers a gate way into real business, for example if you ever wanted to own a corporation and build upon that platform and create an internationally competitive company private equity might offer the skills to do just that.

I might be naive in saying this but I see PE as a tool to change industries and truly create something great down the road. I currently see a lot of growth in Central, South, America, and the Caribbean (Dom. Rep.) the problem in these areas is that most of the industries are controlled by large family owned monopolies, in order to compete you must have some muscle behind you equity wise as well as debt wise, thus I see PE as a way to eventually compete in that arena and truly strive to do something great. Is PE the only way to achieve this? NO but sill it is one of the ways to do it.

I might be naive but that's my 2 cents.

What's your story?

Jun 3, 2010

I second zbb.

My personal opinion: probably a lot of people aim for PE, at least initially, because it's the "default" answer. Just like M&A is the default answer for undergraduates who don't have a good idea of how banking works and just like m. consulting is the default answer for people who are really undecided on what to do. Nothing wrong with that: not many have a clear idea of what they want to do at the age of 21, and IBD/consulting are flexible/prestigious enough to allow good opportunities afterwards, so I guess they are a good safe bet.

Going for PE because it's a "default" seems less excusable to me.

Personally, I've started thinking about PE in the last couple of weeks because it seems that there's some part of that sector which overlaps somewhat (in skills and transferrability) with venture capital and strategy/restructuring, and prepares you somewhat for entrepreneurship. Now, I am anything but sure about this, so I am getting some feedback from alumni and people who know something about the field even if they are not into it.

Jun 3, 2010

Because PE is amazing. You get paid a great deal more than bankers and you work a heck of a lot less. Your income is incredibly stable due to management fees, so even if a downturn comes you're still going to get paid. Bankers and other service providers respond to you --- you set the pace. If you need an extra day to get something done, it is never a problem. If you don't call someone back, nobody is going to call you out on it. Even as an associate I've got service providers sending me small gifts and offering to take me out to sporting events. Honestly, it doesn't get any better.

To top it off, the work can actually be very interesting. I travel a lot, and travel is much, much more fun when you're only working 50-60 hour weeks. You get to enjoy dinners, have drinks at the hotel bar, go to the hotel pool, etc. I actually look forward to getting new deals in house, and often times I request to be put on certain deals that I find interesting.

So, yes, PE is everything that it is hyped up to be. Unfortunately -- so is banking.

Jun 3, 2010

CompBanker,
Do you work at a MM firm?

Jun 3, 2010

Of course.

Jun 3, 2010

A question for you, then: I know that almost everyone here around gets horny when they hear KKR and so forth, but name recognition aside, isn't there an overwhelming advantage in working at a MM? I mean, generally speaking, don't you have a better contact with the seniors & more view on different aspects of the deals ==> better learning opportunities?

Jun 3, 2010

CompBanker,

sent you a PM.

Jun 3, 2010

Don't just do it because it is the logical "next step". If you live and breathe executing deals, go for it. If you see it as a good platform to do something else later, go for it (but do think about what that something else is and actually stick with your plan). If you just like getting paid a shitload of money for work that isn't super hard and is semi-stable then go for it. But most (I'd say shops that compbanker work at are the exception and not the rule) shops are still totally focused on financial engineering and the associate role is basically the banking analyst role with a little more responsibility and a little less/more predictable hours.

Jun 3, 2010

I've recently became interested in PE because as it currently stands, it's my best shot due to a few contacts I have. I've put in over 270 applications and resume/cover letter submissions for analyst positions in M&A and am still very interested. But I really want to hear and learn more about PE.

Comp, can you either post on here or send me a PM of what a week is like for you?

Jun 3, 2010
schifm08:

I've recently became interested in PE because as it currently stands, it's my best shot due to a few contacts I have. I've put in over 270 applications and resume/cover letter submissions for analyst positions in M&A and am still very interested. But I really want to hear and learn more about PE.

Comp, can you either post on here or send me a PM of what a week is like for you?

Impossibly difficult question, I've been at my shop for about a year now and so much of it just depends on what stage of the deal process you're in or what project you're currently undertaking. Maybe a few broad categories will help.

New Deal Evaluations: This could take up 80% of my time or 5% of my time in a given week, depending on what's going on. Overall, it's where I spend the majority of my time. This involves the following:
- Reading offering memorandums (I probably read about 1 a week recently)
- Reading / marking up documents of 3rd party providers (Legal documents, industry reports,environmental reports, IT reports, etc. etc.)
- Conducting phone calls and responding to requests from lenders regarding an opportunity. Often involves answering the same question a bazillion times and sending over a new LBO model every time someone makes the most minor tweak.
- Analyzing data in a dataroom or provided by a company. Talking to management / bankers about the company.
- Discussing the opportunity with the team.
- Preparing presentations/documents to our investment committee for investment approval.
- Facility/diligence visits.

Portfolio Company Monitoring: Usually 10% of my time, but every few months it will be 75% of the week.
- Reviewing company materials (monthly reports).
- Responding to 1-off questions or comments from management.
- Preparing or assisting in the budgeting for the following year (some CFOs do this alone, others require a lot of hand holding).
- Special Projects (this could literally be anything).
- Attending Board meetings / dinners / misc phone calls (just a couple days each quarter).
- Refinancing a portfolio company that is busting covenants (this recession has made this a more common experience for many associates, i'd imagine).

Internal Projects: Not a significant part of my job, usually just a day a quarter to compile reports.
- Preparing reports on our portfolio to our internal team and limited partners. (Ultra-lame, nobody likes this)
- Improving internal procedures, such as adding functionality to our LBO model or other templates.
- Company events (summer party, winter party, deal closing party ... yes, lots of partying!)
- Going to Boston Red Sox games with service providers that want our business (probably went to a half-dozen games in my first few months on the job, usually as a tag-along with the senior guys, but recently I've been getting my own, personal invites).

Of course there are a number of other things that are a part of the experience, but they are more one-offs. For example:
- Selling a portfolio company.
- Fundraising.
- Recruiting the next class of associates.

That's pretty much it. I probably spend about 1/3rd of my time on the phone or in meetings. As for travel, according to my "files," I spent 52 of my first 365 days on the road.

Jun 3, 2010

Oh and, please go easy / have patience with the PMs...

Jun 3, 2010

I've recently became interested in PE because as it currently stands, it's my best shot due to a few contacts

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Jun 3, 2010

CompBanker

Excellent post, how did you get into PE?

Jun 3, 2010
Cmoss:

CompBanker

Excellent post, how did you get into PE?

Two years of slugging it out in middle market M&A followed by applying to PE shops.

Jun 3, 2010

Biggest adjustment I've dealt with since moving from MM IBD to MM PE is the difference in urgency. As CompBanker said, there just isn't the same insane deadline pressure as there is in banking. Maybe this isn't true for the KKRs and Carlyle's of the world, but at my MM firm, there aren't kill-yourself, work-all-night deadlines. This has been (and likely will be) the hardest adjustment for me to make by far (but a very nice adjustment at that.)

Jun 3, 2010

Less work, get paid $200+ / year, $250K+ at the bigger funds. If you get a good place that has chill hours, there's no real downside.

Jun 3, 2010

CompBanker,

Are you Pre-MBA or Post-MBA? For the most part, are you enjoying PE? Do you plan on staying in it for the long haul?

Jun 3, 2010

TheHungryOne:

I'm Pre-MBA. I'm really enjoying PE, this is definitely what I want to do for my career. I do want to go to business school and will be taking a 2 year hiatus from PE if I get into one of the schools on my list. Then, straight on til partner (let's hope...)

Jun 3, 2010

If asked in an interview you need to say "the money motivates me, but the love keeps me grounded"

I personally, got into IBD in order to have access to PE jobs. I didn't want to be a banker when I was in college, I wanted to be a PE guy.

Jun 3, 2010

I know this is a PE thread so obviously most of the comments have been regarding PE - but what do you guys think the advantages of PE over hedge fund work are?

I have a few years before I have to make that decision but am currently thinking about both.

Jun 3, 2010

yes,

it is prestige/money. Usually money causes prestige.

Jun 3, 2010

^^^^

So true

Jun 3, 2010

ok so let me get this straight. first you get the most prestigious internship so you can get the most prestigious full-time offer after college. then, you work for a few years so you can get the most prestigious PE shop/HF job. then what do you do?

Jun 3, 2010

get the most prestigious salary and deals on wallstreet... then you can roll-over and die like Wasserstein.

Jun 3, 2010
MezzKet:

get the most prestigious salary and deals on wallstreet... then you can roll-over and die like Wasserstein.

you forgot the part where you go bald, gain weight, age fast, look ass ugly and lose your health..and then roll-over and die (like Wasserstein did)

Jun 3, 2010

Buy an island

Jun 3, 2010

I think it's almost all about prestige for a lot of people. So many analysts have always been at the top of their class in everything they've done, and it just doesn't compute for them not to pursue the most prestigious PE opportunities. That said, I think far too many analysts, heck, far too many people, put too much value on prestige. I've seen some of my peers pass up bird in hand offers with great PE funds just because they had an interview with Blackstone, for example, even though they may have enjoyed life a lot more (and still gotten paid well) at a "less prestigious" shop.

Jun 3, 2010

Private Equity International last week just came out with its annual "Top Private Equity Firms" rankings, which is based on votes by thousands of people they survey WITHIN the industry. PE rankings are always much less meaningful than, say B-school rankings (which is arguably overrated to begin with), but I think PEI is considered the "U.S. News" of private equity rankings, and may serve as one interesting perspective / data-point

This year the top shops are KKR, Hellman & Friedman, Apax, and Oaktree. I think you may need a subscription to see the detailed rankings, but you can see who were rated #1 for each of their categories within various geographies.

http://www.peimedia.com/Pages.aspx?pageID=2739
hope this is helpful

Jun 3, 2010
kalice123:

Private Equity International last week just came out with its annual "Top Private Equity Firms" rankings, which is based on votes by thousands of people they survey WITHIN the industry. PE rankings are always much less meaningful than, say B-school rankings (which is arguably overrated to begin with), but I think PEI is considered the "U.S. News" of private equity rankings, and may serve as one interesting perspective / data-point

This year the top shops are KKR, Hellman & Friedman, Apax, and Oaktree. I think you may need a subscription to see the detailed rankings, but you can see who were rated #1 for each of their categories within various geographies.

http://www.peimedia.com/Pages.aspx?pageID=2739
hope this is helpful

....this is like any other ranking magazines, firms pay the magazine to get ranked...

the #1 def. doesn't make any sense. HF....?....#1 for two years?...is that a joke or am I missing something here....and wtf Oaktree? Since when is Oaktree in the PE category....

Jun 3, 2010
kalice123:

Private Equity International last week just came out with its annual "Top Private Equity Firms" rankings, which is based on votes by thousands of people they survey WITHIN the industry. PE rankings are always much less meaningful than, say B-school rankings (which is arguably overrated to begin with), but I think PEI is considered the "U.S. News" of private equity rankings, and may serve as one interesting perspective / data-point

This year the top shops are KKR, Hellman & Friedman, Apax, and Oaktree. I think you may need a subscription to see the detailed rankings, but you can see who were rated #1 for each of their categories within various geographies.

http://www.peimedia.com/Pages.aspx?pageID=2739
hope this is helpful

Can someone post the rankings for the top 20 or so firms on this list? I'm interested to see how the votes turned out, but don't want to get a subscription just for this. Thanks in advance and silver bananas for whoever does it.

Jun 3, 2010

It seems weird that Oaktree is on there for PE. Their PE aum isn't that big (much more dominant in distressed/high yield).

Jun 3, 2010

It probably has to do with the respect that Howard Marks commands..

Jun 3, 2010

Generally PE is more coveted due to the reduce working hours compared to PE, and the money is better.

Jun 3, 2010

For the Money. Money makes it all worth it in the end.

Jun 3, 2010

Oaktree deals in way more illiquid stuff than your typical HF. Distressed/Turnaround PE would be the term.

Jun 3, 2010

How can you say that money makes it all worth it in the end when A) you dont have the "money" (at least relatively speaking) and B) you are nowhere near the end?

I would say that prestige is more heavily correlated to power than to money although they are of course interrelated, at least thats what I remember hearing in the The Lox song

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