I'm currently working in IBD and after weighing up what I want to do next, PE seems to be the winner as I've found myself becoming increasingly interested in the industry and the nature of the work.
However, from my standpoint, it seems like the industry is way too crowded, too much capital chasing too few deals; there's nothing like an overly competitive auction process to kill your IRR.
I recently had a conversation about this with an IBD old timer and he was of the opinion that we're going to see a polarisation in the market with funds that have diversified into other areas (distressed debt, real estate etc) at one end, and specialist PE funds that only operate in one or two sectors where their expertise (aided by partners with operational experience) can genuinely add value, at the other.
What are people's views on this? Will we see less generalist PE shops over the next decade or so?
Moreover, is compensation on the way down? I've not personally seen the data to back this up, but I read a post on WSO that said:
- Today only half of all buy-out funds in Europe earn carry (beat the hurdle rate of 8%)
- Transactions are today priced at an IRR of 15-17%, down from 23-25% 5 years ago
If this is indeed true, are we likely to see GPs pulling their money out of PE and towards other alternative investments with the potential more attractive returns (and similar risks) e.g. HFs?
I still want to go into the industry regardless, but my enthusiasm may be tempered if I am essentially working my butt off to board a sinking ship, especially with having to face the competitive private equity interview process...