I had a meeting with a MD at a large PE firm last night and we spoke openly. He mentioned that modelling was a big part of his analysts jobs and I mentioned I read books on it and have done courses and can have make models on my own usually within a few hours.
He was shocked and was sure it takes at least 2 weeks for a analyst to complete it. I asked him why so long but he just said normal problems everyone has while modelling, figuring out relationships between entries, making it balance, etc..
So my question is, what am I missing? The online courses are a few hours and even the prep is a few days(with in-depth instructions), on your own with no lecture and a bit of experience shouldn't it only take a few hours? What are analysts in PE firms doing thats making them take so long(these are not dumb analysts, its a top PE firm and all the analysts have insane amount of degrees from top schools)?
Your model is probably incredibly basic compared to theirs and theirs probably includes much more flexibility to run sensitivities on various scenarios for revenue cases, debt paydown, opex scenarios, sales of business segments, etc.
In short, their model is probably much more granular than yours, while yours is probably very high level and more useful from a theoretical perspective than a practical one.
Good point, rufolove. I guess doing the modelling prep classes wasn't as impressive as I thought. But your right, I mostly just focus on line items from the financial statements and might expand the revenue area, they might be expanding every line item.
there's uses compelx matlab functions and vba proxies
they also know when to use there vs their
Is there any chance to lay hands on one of the those super-detailed real life models?
most of their time is spent analyzing the quality of the inputs that go into the model (i.e. truly understanding the revenue/cost drivers of each division, etc) rather than on the model itself. As obvious as this sounds, money is lost or made base on their understanding of the inputs/assumptions made.
this... takes me about 1.5 weeks to get a model completely functional, this includes another couple of days cross checking analysis of revenue drivers and margins across the industry and providing defensible arguments for our assumptions
what kind of books and course have you read/done and how long did it take you to become proficient at it? and what did the MD say? do you have a shot at working in PE just from the courses?
I did wall street training, read Simon Benninga's modelling book and Tjia's buliding financial models. I also invest a bit on my own so I practice modelling companies that I'm interested in. I think I'm good at it for some firms but not for all. Since many firms I like are in simlair industries I manage but if I had to model a bank or something I am not famlair with then it'll take me a bit more time to understand. I keep practising and try to build 1 or 2 models on the weekend.
The MD said that many analysts struggle with modelling because they do not fully understand the relationships between different accounts in practice. He also mentioned that its hard to get in without working somewhere else first because most PE firms(including his multi-billion dollar one) do not train. Although he knows I'm very driven, he said most people are not and will only learn what the company offers to train them on.
by wall street training do you mean wall street prep?
I'm not sure what your relationship is with the MD or if this "chat" was actually an interview, but it sounds to me like he's at least open to giving you a shot. As he said, he doesn't want to hold hands and train you, so you need to prove to him that 1. you know what you are doing, and 2. if you don't know, you will learn on your own without asking the other analysts and wasting their time. I'm sure he doesn't want to waste money on your salary and his analysts' time on training you.
are you familiar with him on a personal level? does he/you look at your chat as an interview of sorts? does he want you to do a model for him? also, how long did it take for you to achieve this level of modeling?
On a related note, how large are your models typically in terms of file size?
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