May 13, 2018

Small/Mid-Cap Public Equities Relevance to PE?

I understand the split between public and private markets investors and why the skillsets are different, especially at the higher levels. Why though does this split happen so early? Is it all due to knowledge of transactional work vs. not having that? For instance, my current path looks like it is heading towards being a HF analyst for the first 1-2 years after graduation covering small and mid-cap stocks with a deep value focus and 3-5 year holding period. Our portfolio is highly concentrated and the research on any one position is extensive and involves engaging with management a lot. Intuitively this seems like it would be relevant to PE provided that I could learn/get trained up on the transactional material (which I would have some expsore to already from modeling special situations).

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5y

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PE

5y

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I’d say that the difference is not much in terms of transaction capabilities but rather that the PE perspective is investment = transaction, while for HF investment = buy/sell shares. In other terms, a large part of PE return is generated in the transaction for the investment and divestment (limit case is an LBO where you sell the same company 3-5 years later with simply less debt). HF, even the acivist one, creates return mostly through a capital appreciation during the holding period.

Authored by: Certified Private Equity Professional - Investment ManagerCertified Private Equity Pro

AM

5y

Thanks, swiss_monkey. Going off of your comments there, would you consider a person who has worked at a small HF for 1-2 years right after undergrad for a role in MM PE? If so, what you would expect them to have to work on before the interview process and on the job respectively?

I'm curious because the apparent lack of optionality to transition to private markets is one of the biggest things that concerns me about going to this fund FT and is making me think I should consider FT recruiting for banking.

Authored by: Certified Asset Management Professional - 1st Year AnalystCertified Asset Management Pro

PE

5y

Not easy to say... Perhaps it's a lot a matter of what you've done at the HF (macro and quantitative way less attractive than merger arbitrage, for instance).

Especially for MM PE (and even more for lower MM), I believe it all boils down to what the team is looking to add in terms of capabilities.

Anyway, generally speaking if your end goal is PE, then with an analyst stint at a bank you should be better off.

Authored by: Certified Private Equity Professional - Investment ManagerCertified Private Equity Pro

PE

5y

A lot of actual deal execution work in PE i.e. managing external advisors, documentation work streams, data rooms etc. is quite different from what public markets investment professionals tend to do, and is mostly handled by juniors.

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CF

5y

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