Transitioning from PE to HF
Hey guys,
I'm close to one year into my PE job and thinking about making the switch to the public side. The thing is, I'm mostly attracted by the prospect of investment generation vs. the heavy process-oriented work in PE, but don't really have much experience reading up on public equity ideas, pitching stocks or even personal investing (limited by restrictions in IB / PE). I'm wondering how I can dive into the public equities world more in my free time, whether it's certain books, newsletters, or podcasts to listen to in order to gain more knowledge.
The other big fear I've had is that you need to "breathe the markets" in order to succeed in the HF world. I certainly haven't done so and am wondering if this if something that's crucial in order to make the switch.
bump
This is an interesting post. You possess the skillset to assess any company. Can't you just apply that to equity research and see how your assumptions play out? Sure, you won't be able to invest in them but maybe it'll showcase your thought process. I once networked with some CIO and he recommended I create a profile on SeekingAlpha and provide investment ideas through there and gather a following. Other than that, I'd argue that the only way to really learn is by personal investing. Anyway, that's my 2 pesos.
OP I'm in the same boat but would judge that I'm maybe 1-2 months ahead of you. What was helpful for me was making stock pitches. I got in front of an interviewer and my first one was garbage. But it was eye opening to see how public markets guys think. One of the SMs I interviewed with (think like a Coatue-tier investor but not Coatue) did not ask me for a single financial metric in my pitch, which blew my mind. I would do this, except get peers to evaluate your pitch, and then maybe graduate to some alums you know in the industry, or if you're squeamish about the spotlight, then WSO mentors (some are very good).
Thanks this is helpful. Where did you learn to initially construct pitches? I'm not even sure where to begin there.
I have a PE background and now work in public markets; I can empathize with this. I think if you want to come off differentiated and save yourself a lot of time, you shouldn't focus too much on how sell-side ER value businesses (i.e. beating to death the 3 conventional valuation methods that you were programmed into learning). You're better off finding names that have traded off substantially or have some interesting SOTP that the market isn't efficiently valuing and make a case to why there is a break-up or take-private catalyst, which hopefully should weave nicely with your PE background. The reality is there is a lot of froth in the public markets today and no one can really intelligently articulate why some niche tech business is trading at 20x+ revenue other than falling onto some large TAM trump card. If you're interviewing for a job rather than trade in your own PA (where you can just unjustifiably buy whatever you want), then it's going to be easier to explain catalyst-driven ideas.
Same background. Transitioned from PE to publics. I think it's more about articulating your interest in public markets vs. what you do in private markets. The fact that you are engaging in a lot of process work + want to focus your time on evaluating investment ideas is a very common answer that PE guys have when they interview for publics. But think about some other experiences you can talk about - do you have any 1-2 stocks that you're reading about that you find interesting + have a thesis for why it should go up or continue to grow? Did you enjoy talking stocks in college in your investment club? Are the favorite parts of your job the business diligence and investment thesis vs. managing 3rd party consulants and lawyers and doing the funds flow? Lots of stuff you can discuss. But having 1-2 stocks that you are excited about is just a good way to signal that you actually are interested in investing in public stocks.
On ideas -> I recommend you go with some easy business models if you can. Explaining a thesis for a company with 6 business units in 3 different industries, etc. is just too difficult for a 5 mins pitch. Go with a simple business with 1-2 revenue streams with simple income statement with some good industry tailwinds where the business is the leader and positioned to win. Obviously if you're interviewing for some complex value shop that wants you to find the diamond in the rough, maybe that won't work. But honestly this is going to be enough for most interviews. Nobody is expecting you to be able to Warren Buffet - they just want to know you can talk through a thesis that makes sense.
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