Thoughts on LMM Fund in Small City

I would like to get your input on my situation and offer.

I'm currently a third year at a top MM IB in a major city. Was late to recruiting so I've been doing off-cycle. I've received an offer from a lower MM (250-500m fund size) PE shop that has a solid track record and is well respected. It is in a small "Tier 5" city (think Indianpolis or Kansas City) that I don't mind being in for two years, but would definitely not want to stay long-term. It is a two years and out program, so that works out well.

Two potential concerns that I want to get your thoughts on:
1. The pay is very below market. It is between 100-140k all in. From what I've heard from my network, this firm will mostly likely not be willing to move on comp.
2. How hard would it be to recruit from a LMM PE shop in a small city to a LMM/MM fund in NY or LA after two years? Would an MBA make the most sense?

I don't want to stay in banking long-term and am coming up on the end of my third year. Promotion is possible, but I know recruiting as an associate is harder.

Should I take this offer? Or wait and keep recruiting off-cycle over the next 6 months? Are PE offers (even below market) really as hard to come by as everyone makes it seem?

Thanks.

Comments (15)

Jun 6, 2019

For what it's worth, 140k in Kansas City and Indianapolis is 355k+ in Manhattan. Gotta factor cost of living when making the salary comparisons.

https://www.nerdwallet.com/cost-of-living-calculat... https://www.nerdwallet.com/cost-of-living-calculat...

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Jun 6, 2019

I've definitely thought about COL, but there are certainly firms in low COL areas that still pay market. Helps soften the blow a bit tho for sure.

Array
Most Helpful
Jun 6, 2019

If you're at a top MM firm in a major city, I'd imagine you could do better if you keep working on the recruiting front.

I'm a big proponent of LMM PE, but in your scenario I'd be cautious about the offer. To me one of the big advantages of LMM PE is that in theory, you should be able to stick around for longer than the 2 years and get onto a partner track role without having to go back for an MBA. This combined with a lower COL city and maybe a place you could settle long term, is what makes LMM firms in non top tier cities attractive.

In your situation, they're going to 2 and out you, so even if the experience is good, it'll be tough to stay long term. The comp on a comparable basis is good, but at a small fund, you're not going to get paid much on an absolute $ basis, so it's not like you're going to bank some massive bonuses in two years and then leave, which is the usual formula for kids at UMM/MF. You probably won't even save that much more than if you were making a high absolute $ amount in a higher COL city because the time duration is too short. You might have a chance to move from this firm to another LMM or MM firm, but it tends to be tougher if you're really at a no name firm in a no name city. Lastly, the route to business school becomes much harder if you're coming from LMM PE vs a name brand shop that has a track record of sending kids to B school. Just know that H/S will be extremely tough(unless you have some external factor going for you) and you'll probably end up somewhere farther down the M7 chain. That's not bad, but recruiting for Senior Associate/VP roles out of B school with only 2 years of associate experience at a no-name sub $500M fund out of Indianapolis is going to be rough.

In my opinion, it's a pass unless they're putting you on a partner track role and you'd be ok settling into the city for longer than 2 years. Or unless they have a strong track record of sending people to business school.

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Jun 6, 2019

Thanks for the response. I'm in a similar situation as OP (~$500m fund in T4-5 city)...but already accepted the offer and am considering re-negging.

Have you witnessed anybody do that before? It will torch a small piece of my network, but I'm terrified of getting "stuck" in a non-major city.

Also, what makes it difficult about a lateral to a major city? Just proximity for networking + being in an awkward "in between" spot from a seniority perspective?

Jun 6, 2019

Thank you, this is incredibly helpful.

There is definitely no possibility of partner track and I definitely don't want to be in the city for longer than 2 years, so a lot of my decision will depend on how hard it will be to recruit out of the no-name city. You are saying that regardless of whether or not I get an MBA, it will be an uphill battle?

Are there any additional perspectives you can share about what it would be like? I'd imagine it would be easier than going from IB to PE right? Or is PE to PE lateral
even tougher coming from a no-name city?

Array
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Jun 6, 2019

@itdiestoday1557

Reneging isn't the best but at the end of the day you have to do what's best for you. A company would be quick to fire you if they had to do that, so I wouldn't feel too much loyalty unless someone stuck their neck out for you to get the job.

To clarify my comments, lateraling isn't impossible, people do it, especially if you're at a place where you can get good experience. You might have to start back over as an Associate though and it's likely you'll have to network fairly hard. Depending on the strength of your banking group, LMM PE might be the best option to gain some investing experience and you can decide what to do down the road.

I wouldn't worry too much about getting stuck, you'll always be able to find something, even if it takes longer than you'd like.

@Evianstone

Regarding an MBA, yes it will be difficult to recruit for PE coming out of B-school. At the end of the day, there's more people that want to get into PE than there are seats. There are a fair amount of people who go to UMM/MFs, get two and outed, go to H/S and then are fighting for the same roles that you would be looking at with your LMM experience. With that being said, often times LMM/MM experience is better than those at the bigger shops, but that's another story. Point is, there's a lot of competition for Post-MBA roles and if you can't differentiate yourself with great experience, more than 2 years of experience, brand name firm, etc you'll have to roll the dice on whether you can find a firm that's a good fit.

I have a slightly less traditional path and haven't lateraled to another shop(even though I've had the offers) so my experience is purely anecdotal, but I was always under the impression that the easiest path into PE is as a banking analyst. Lateral PE vs post-MBA is probably a toss up depending on the scenario.

Sorry I can't be more helpful beyond that, hopefully some of the PE veterans on here can chime in.

My advice for both of you is, in general, LMM PE is going to be the hardest starting platform if your goal is to move up the PE chain. If that's the only option you have, that's fine, but you just need to understand where you're starting from and the uphill battle that will entail if/when you want to leave. It's generally easier to move from bigger funds to small, but there are obviously exceptions. Personally, I'm in LMM/MM PE (depending on how you categorize it) and I love it, but I don't have aspirations to join a MF or to lateral to a bigger fund.

If you're thinking your path is going to be LMM PE --> name brand MM PE
or
LMM PE --> H/S MBA --> Post MBA PE VP

then you're in for a surprise

The path from LMM PE tends to be less traditional and can leave in some cases back to PE sometimes to Corp Dev, sometimes to an operating role, or sometimes in staying on with the firm. Big firms can get away with 2 and outing people bc they pay a lot and give you a brand. To me, small firms that 2 and out people need to clarify the benefit they're going to provide, otherwise they're just exploiting the fact that tons of good banking analyst are clamoring to make it to the buyside and will take whatever role they can to say they're an investor.

This has been a longer post than I meant to write, but my last piece of feedback would be, chat with other associates at the firm, what has their background been and how do they think of the opportunity. What about former associates, what have they gone onto do? I'm sure those guys/gals have gone through the same thought process as you have.

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Jun 6, 2019

Thanks a lot. Really appreciate your insight.

My banking group is strong (M&A at top MM) but my GPA is bad (<3.5) and I couldn't get NYC interviews when I recruited.

I think the experience will be good there, they are very active and just raised a new fund. So hoping in 2 years I can move to another LMM in NYC, or Corp Dev.

Jun 6, 2019

I absolutely agree with what @mrharveyspecter said, but to play devil's advocate, whether you like it or not, the door to PE is closing fast and will likely be pretty much shut in a year or two if you stay in your banking gig so of course, whether you can do better has to be a consideration, but you also need to keep in mind that the current offer might be your best bet and although not optimal, it might be an opportunity you may want to pursue. You said you were late to recruiting, how late are we talking about? Since you started recruiting, how many process did you get in, how far did you go, do you have anything else ongoing? Also, what's the background of the partners of the fund you are joining, what is the culture, have they discussed MBA application support (really crucial in a 2 and out program)? How hard it is to lateral will also be influenced by the reputation of the fund, your actual working experience and how much the partners are willing to help you out.

I know a few people that were super picky when recruiting (ie. MF or nothing) and many of them ended up striking out and really regretting not casting a wider net. It can be unbelievably hard to move up in this industry so it's often impossible to "catch up" to your competition if you don't get on the track right out of college. @mrharveyspecter mentioned attrition at the MBA level and having gone through post MBA recruitment, I cannot emphasize enough how much imbalance there is between the number of pre vs post MBA positions and therefore, competition for seats is really intense and obviously the people that are on track (ie. 2+2 at HSW) have a significant advantage and not everyone places. Anyway, a very tough decision, but I think you need to be realistic about your chances when you assess your options.

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Jun 6, 2019

SB'ed completely agree with all of this.

Jun 6, 2019

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Jun 7, 2019

For starters do not make the decision based on comp. Focusing on comp is the wrong mentality. COL does matter even if you think some (def not all) 2/3rd tier cities pay market. So what cares what the number is as long as it shakes out the same. This aspect of the analysis needs to be tabled completely.

As other have said, one of the pluses of a LMM is if firm get huge you were there early. You get to potentially grow with the firm etc. Basically its an element of equity risk. The fact that isn't on the table is a pause. Then again, you dont want that city anyway so not the end of the world.

What I think should be the real deciding factor is how much do you like the team, how active is the team and how much experience are you really going to get. Also, how strong has your recruiting been? If youre "only" at a MM firm getting a PE gig is probably already had to begin with - so what's the risk of passing on this? Have you been getting lots of looks? Only you know this but if its more limited I'd think about that.

In terms of future recruiting, the fact you're recruiting from a different city is less relevant than the fact its LMM. Regardless of the city its hard to go upstream - so if the choice is big city LMM or small city LMM, I'd say its a wash. If you think you land a better shop that's different. However, getting to larger shops from a MM shop is much harder as they have structured recruiting programs that are largely exclusive to BB and EB. Only you know what looks you've been getting to evaluate this.

Basically, if you think the team is great, experience will be great, etc the go for it everything will work itself out in the long run. However, if there are lots of areas where you're concerned and you think you can get another job take the risk and pass. But to be clear its a risk.

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Jun 6, 2019

@mtnmmnn and in response to you, I've exclusively gone through headhunters and they've passed along roughly 50 opportunities in the last 3 months. I've gotten first rounds at 10 of them, 5 of which I didn't make it pass the initial phone call, 3 of which I got cut mid-process, 2 final rounds, 1 offer. I can definitely benefit from a bit more dedicated prep time.

I'm not sure how this compares to others, but it feels like my resume has been getting passed over more and more lately, which has put me in sort of a scarcity mentality.

If I don't want a long-term career in PE, would going to this LMM shop give me a "brand" as a "PE guy"? Does that position me significantly better compared to IB when joining a strategy/product role in a corporation or a start up? I think my end goal is to be in a critical strategy role at startup that I really believe in.

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Jun 6, 2019

Thanks, it's hard to measure how you compare to other applicants as everyone is different, I just wanted to get you thinking about how likely is it that you would get another offer.

Reading your last paragraph along with the last sentence of your first, I do have to question whether PE is something you are pursuing because you are passionate about it or just because it is the cool / prestigious thing to do. Frankly, if your goal is to work at a startup, why not pursue it now. An extra 2 years in PE isn't going to significantly improve your profile from the perspective of a start up. Having interviewed hundreds of banking analysts, I can assure you that it's easy to tell who is genuinely passionate about PE / investing and who is just following the herd and that has an HUGE impact on placement.

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Jun 7, 2019
  • Thats a pretty wide net to "only" get 1 offer. Don't get me wrong, its really hard and its awesome you got an offer, just not sure how much waiting is gonna tilt the odds in your favor. It might and it might not.
  • How do other analysts at your bank place? Is getting into a better shop the norm? Do better shops recruit from your firm? Basically, based on others, what's the likelihood of success on passing? (Don't need to answer just things to think about)
  • For shops that passed on your or where you didn't get looks, can what type of background do their hires have, is it all BB or is it more diverse? (Don't need to answer just things to think about)
  • If you're not really sure you want to do PE long term and you want to be in tech strategy, why on earth would you take this job. Unless this firm has a tech focus it likely doesn't add much value. The thing I've learned over the years is that brand is the most important thing - for better/worse. Tech firms likely won't care that you were in PE if they have never heard of your shop, even more so if it isn't tech focused. So assuming that is your goal, why waste the time in a Tier 5 city in a role that won't be that huge of a positive difference long term. You should be recruiting for post-banking pre-mba roles at tech companies in corpdev / strategy.
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Jun 7, 2019
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