Q&A: Senior Associate at MM PE Fund

I used WSO extensively when I was breaking into finance and have been meaning to do this for a few years now. Background: I grew up in a town with <1,000 people and had never heard of ibanking. I then went to a non-target school (defined, in my case, as the last person to get into ibanking directly from school was in the 90s) w/ a 4.0 gpa, cold-called and emailed my way into a 4 person ibanking shop my sophomore summer which I then leveraged into a MM ibanking internship where I worked full time for a year, went to a PE fund for 3 years, and have been at my current fund for over a year (which allows promotion w/o an MBA) where I plan to be for some time. I also write about mental models, investing and misc. stuff (wrote a piece on advice to my younger-self that could be applicable to many here) at the website clearingfog.com and am on twitter as @clearingfog_III. I use it more as an avenue to meet interesting folks and tease out ideas. I am not sure what my end goal is. Within PE I like learning about business models and industries more so than the execution and portfolio work. As such I may try to start my own HF with a microcap bent and highly concentrated (7-10 investments) or I may just continue along the "track". Lowlights: I interviewed at a BB bank and didn't know what EBITDA was (suffice to say I didn't get a call back), but I did take Aswath Damodaran's classes online which I would highly recommend if you don't get a formal finance education Highlight: probably my current job or finally getting my internship offer. With that, I plan to be online next few days to answer any questions. So ask away.

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Comments (47)

Sep 23, 2018 - 4:50pm

I have a bit. The high velocity and debt frame of mind limits how much you need to learn about the company and industry as far as I can tell (I have a couple friends at debt shops and obviously interact with them on our deals). It's the deep dives into why a company exists and how it will perform in the future that excites me which you don't need to do at a debt fund.

Sep 23, 2018 - 5:11pm

Thanks for the AMA - when firms claim to be focused on operational improvements - what in your experience does that truly mean? Simply slashing budgets and swapping management or does it actually mean making meaningful strategic change?

Also - if your firm is focused on operational improvement - how much involvement do junior people have in that process?

Sep 23, 2018 - 5:35pm

Good question. At my size, I have never seen the slashing of budgets, in the first two years we are always investing in new personnel. Have we swapped management, yes, but that is in the minority. We provide operational improvements through the following ways: interviewing and hiring out the c-suite, institutionalizing financial reporting and KPIs, and acting as a sounding board for major strategic initiatives and investment. The reality is the business and industry probably impact 80% of the investment, 15% is influenced by the management team that we either backed or installed and 5% is due to us helping with KPIs and strategic decisions.

For the junior people, the experience can range depending on management's sophistication and the fund. I have one co. who really only the partner talks to the CEO and they are very autonomous. I have another co. where I and the associate created the entire monthly reporting package and weekly KPI dashboard. I interviewed the CEO that we installed into a Co. (purchased from a founder and a pre-requisite to close was to install a new CEO), but the reality is the biggest decisions and hiring are made at the partner/founder level. Can I provide insight and is my voice heard, yes, but the ultimate decision is the partners. 1st firm my opinion wasn't valued as much as 2nd firm - a combination of people and my increased experience.

Sep 23, 2018 - 7:07pm
clearingfog:

The reality is the business and industry probably impact 80% of the investment, 15% is influenced by the management team that we either backed or installed and 5% is due to us helping with KPIs and strategic decisions.

Ooof. This hits close to home.

I'm on my way out of a MM PE fund myself, and part of the reason I'm leaving is that the partners think that management team and strategic decisions are what drive the 80% of the return, instead of the other way around.

As Buffet says, when a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.

"The power of accurate observation is commonly called cynicism by those who have not got it." - George Bernard Shaw
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Sep 23, 2018 - 5:37pm

On a scale of 1 to 10, how hard do you laugh when you meet a c level that doesn't know how to use Tableau?

Sep 23, 2018 - 7:10pm

Thanks for doing this. A few questions

1) what % of your time do you spend on origination, deal research/execution, and investor relations/fundraising? do investors expect a lot of glittery PPT updates or is it more of a brief report with most of the action taking place via conference call or a meeting?

2a) lots of noise in the media about PE firms growing out credit/debt arms. What's your view on the private debt realm, ranging from senior debt direct lending all the way to mezzanine? how analogous is that world to PE?

2b) that 5% of helping with KPIs and strategic decisions - can this kind of work be done by a PD fund that gains an observer on the board?

3) how precise do you have to be in your industry analyses and forecast? how do you go about selecting an industry to focus on - or do you look at a given industry as a function of the deal opportunity? (ie. oh, I like the market for healthy snacks, vs oh here's this potential deal, it's some company that makes gluten free chocolate chip cookies, better research the market for healthy snacks)

thanks bro

The truth is you're the weak. And I'm the tyranny of evil men. But I'm tryin', Ringo. I'm tryin' real hard to be the shepherd.
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Sep 23, 2018 - 8:00pm
  1. My time is spent ~60% deal research/execution 30% portco stuff, and 10% origination/misc stuff. Dont do many superficial ppt decks or updates and we have a pretty big back office (3 ppl) that does a lot of investor relations stuff.

2a) dont have much of a view. more aum = more fees = more $ for the partners. as you get more senior in the cap structure you care more about the downside and are more diversified. It isn't that appealing to me.

2b) no - the majority equity guys will control the investment. When we bring co-investors even (equity guys but not majority) we still gloss over things / don't get into the weeds / air dirty laundry with them. Even more so with debt guys.

3) a little bit of both - we are proactive in finding industries we like (we do a lot of healthcare services so know the space well) and we are reactive to what opps are available. More of the former than latter. With regards to precision, I mean it is really hard to disentangle cause and effect, especially over PE investment horizons. You can also get the industry right but the company wrong and do poorly.

Part of my attraction to the public markets is that it appears there is less ambiguity between luck and skill. A PE guy can easily have a 10 yr career and have only made 6 investments and not even have realized them all. How do you know if he is good or bad.

Sep 24, 2018 - 7:36pm

thanks. so it sounds like the debt part of PE is basically focused on the 80% of the investment that is impacted by business and industry, plus documentation, terms, etc. the other 20% on management relations and strategic advisory is out.

i guess it could get dull after a while

The truth is you're the weak. And I'm the tyranny of evil men. But I'm tryin', Ringo. I'm tryin' real hard to be the shepherd.
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Sep 24, 2018 - 9:23am

Thanks for doing this.

Is there a large difference in terms of responsibilities between those who do IB and then transition to PE compared to starting in PE right out of college?

Did you find that IB really helped solidify your skills/did you find it to be worth it? I am unsure if i should consider a BB IB gig for a year FT before trying to transition to PE or if I should just stick to my current PE firm and lateral my way up. Is there any associate who hasn't done IB or consulting at your firm?

Most Helpful
Sep 24, 2018 - 11:15pm

Great question. Yeah, I've thought a lot about this. In essence I think an MBA comes down to three benefits and when you unpack it really two: networking, brand and learning.

For learning I try and read 25+ non fiction books a year and am generally intellectually curious so not too concerned about missing on on that.

Brand and networking are very much intertwined. A brand is merely a signalling device to individuals who have not directly evaluated you or know you. As soon as your work product comes to light no one cares about your school, they care about how you perform. As such, the goal should be to publicly disseminate your work product / meet people that can go to bat for you. This is part of the reason why I started my website. I want and need to meet people and build relationships in order to compensate for my lack of branding. It's incredibly hard to meet people and make relationships as you would in b school, but I don't think
its impossible.

On a personal level I just really dislike school and teachers telling me what to do.

Best counterpoint was from a partner at a 5bn fund: " why do kids keep parroting this opportunity cost BS, instead of retiring at 50 retire at 52 and pull fwd 2 years of your retirement to your mid 20s when your dick still works and you aren't wearing a catheter"

Not exaggerating and through the vulgarity he makes a good point.

Sep 24, 2018 - 7:07pm

It looks like our tracks so far have been very similar. When you were cold calling and emailing during your sophomore year how did you select who you were contacting? Did you follow any templates in your emailing because I'm currently having a very hard time getting that one email back that I desire.

Sep 24, 2018 - 11:04pm

2 inflection points so far: 1. After my first year I was generally more efficient and better at my job. 2. When I got an associate under me. The 2. Inflection point was greater than the first. 70->65->55 hours. Very rough estimates. I also have way more control. Sometimes I will procrastinate leaving at 630 every day then work until 2am one day. Personal choice though.

Sep 30, 2018 - 4:59pm

As someone coming out of undergrad and might have the ability to work at a LMM PE firm, would that be a good place to start if I want to eventually go get my MBA from at top 10 school? At a non-target and dont have any IB offers so its really that or find a corp dev analyst job somewhere.

Array
Oct 1, 2018 - 5:20pm

For sure,
Partner MBA's range from Harvard to Combs to Kellog but most seem like top 15 programs.

As for associate placement, its hard to gauge since the firm is only 5 years old but it seems like most go to other PE firms at a slightly higher level.

Array
Oct 16, 2018 - 6:53pm

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JM28
Oct 16, 2018 - 7:19pm

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