Weighing PE Offers

I am a second year IB analyst at a MM firm. I'm actively trying to move back to my home city and was denied by my #1 and #2, but was fortunate enough to receive an offer from my #3. While I really like the firm's investing principles and the personalities in the office, I have some reservations regarding exit opportunities should I decide to explore my options in a year or two. I asked for fund performance over the last two to four vintages and was disappointed to see the fund under perform (averaging mid-teen IRRs). Recently, they failed to reach their hardcap for their newest fund and nearly had a down round.

I don't have a strong grasp of what funds look for when hiring a lateral beyond the usual: recommendations, brand of last employer and responsibilities. The group has a solid regional reputation - plenty of contacts have said good things about them.

Will IRRs of the fund impact my recruiting efforts should I want to move upstream in the same geographic location? Should I be worried that recent performance hasn't been up to par?

Comments (8)

May 13, 2019

What are the average sizes of the funds that have raised in the past? How do you know they couldn't raise the full amount and it wasn't just them re-evaluating and raising a new amount?

May 13, 2019

deleted

Array

May 14, 2019

I don't think that fund performance is that important when looking to lateral to another firm. Your actual experience and deals worked on is more important.

I'd be a bit more concerned about fund size not increasing. If the firm has another flat fundraise in 4 years, it will cause structural issues. Without an increasing mgmt fee base, its hard to promote ppl and give them raises.

May 14, 2019

Can you elaborate on why relatively flat fund sizes is cause for concern? I was under the impression that some funds deliberately keep fund sizes consistent to underscore their strength and expertise in deals of a certain size.

May 15, 2019

Consistent, yes, but they'll still increase fund size by +/- 10%, you can still do the same types of deals. But if your fund size is flat to down, then revenue at the firm is constant. How are raises and promotions being paid if revenue is flat.

Learn More

9 LBO Modeling Tests, 10+ hours of PE Cases and 2,447+ interview insights across 203 private equity funds. The WSO Private Equity Interview Prep Course has everything you'll ever need to break into the competitive PE industry. Learn more.

May 14, 2019

Are you asking from the angle of someone looking to do 2 and out or career track? If 2 and out, I wouldn't really worry about it. If career track, I still wouldn't really worry about it that much. For one thing, you can't really just say 'mid teens IRR = mediocre fund'. You kinda have to look at where they are relative to other funds of similar vintage/size/strategy, and you also don't really know if they are conservative or aggressive in their valuation methodology.

Also I am a little confused - your title says you are "weighing PE offers"... I don't see any other offers, so like it or not, it kinda seems like this is it, no?

    • 1
May 15, 2019

deleted

Array

May 15, 2019
Comment