Why Banking Over Private Equity/Hedge Fund?

Fleur-M's picture
Rank: Senior Monkey | 93

For those of you who chose/want to remain in investment banking instead of moving over to the buy-side at a private equity firm or hedge fund, what are your reasons? Why would you choose banking over PE/HF? Thanks!

Comments (12)

Jun 17, 2018

I think a big part of why people stay in banking is inertia. There is comfort in the familiar, and it takes less effort to keep doing what you're doing rather than go through the competitive PE/HF recruiting process (on top of banking hours) and, if successful, start at the bottom of the totem pole all over again, at a new office with new people, new procedures, etc.

Jun 17, 2018

What do you think about differences in the work?

Most Helpful
Jun 17, 2018

1) Lifestyle- Everyone raves about the lifestyle improvement, but most of my friends say it's as bad or worse than banking

2) Comp- Unless you're at a megafund, you are taking a paycut on base and probably all in as well

3) Career trajectory- 2 and out highly prevalent in PE, and the mid ranks are more saturated than in banking. You can spend an entire career and never get beyond VP / Principal, simply because the seniors above aren't moving and there are no open seats.

4) Opportunity cost- MBA is required at most places in order to climb the ladder. Huge opportunity cost to leave a very high paying job to roll the dice on a <20% chance of re entering the PE world. Risk adjusted gamble not worth it unless you are of the GS --> KKR pre- MBA ilk.

5) Reset- While you likely got sold on responsibility and learning opportunity when you recruit, the bottom line is you're still a monkey crunching numbers in excel and processing CIMs. All you did was do a reset. You're just a buyside monkey now. Still an expendable cog in the machine (modeling isn't hard) and lowest on the totem pole once more.

6) Market Saturation and Competition for assets - PE as an asset class is reaching maturity. PE firms are a dime a dozen nowadays. Look at all the dry powder, and the limited quality assets at bargains. Returns will continue going down and there's a great deal of uncertainty when every Joe Schmoe is running the same strategy. Only the best investors / operators will prevail.

7) Carry (carrot at the end of the stick)- Yes at the upper echelons the money is insane. Will you ever get a big bite of that $50 mm carry distribution? Probably not. There are only a handful of partners (maybe less) at every firm that's really raking it in / scaled enough to make the chase & risk worth it. You're looking at an incredibly small and concentrated pool of people holding the lionshare of economics (100x smaller pool of ppl than banking) and they're not going anywhere. They like to keep their wealth. Want to wait them out? Take a number.

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Jun 18, 2018

What about HF instead? I understand the over saturation of PE and while HF does have the same issue in that sense, is it still possible to move from IB to HF analyst and move to a smaller firm as PM? Or is it just a number in the long line that people are waiting for, just like PE in the future.

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Jun 21, 2018

It's a pretty similar game in the top heavy sense, as everyone's gunning for PM, but there aren't as many openings. Also, much more risk in HF (see underperformance and HF implosions over the past few years) than in PE from a career safety standpoint. The smaller firms aren't going to provide openings like you seem to think either, since those 1-3 PM's are staying there for decades. Best way is to get into a top HF, which has a track to PM. Again, just like PE, you're trying to break into the KKR's and Apollo's of the world, so good luck with that ( 1-3% of sell-side guys will move into megafunds like that)

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Jun 21, 2018

It's a totally different skill set as you work your way up. Banking is more outgoing / sales orientated as you get more senior whereas PE / HF has more of an investor mindset which can perhaps be a bit more "academic" or introverted.

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Jun 21, 2018

My hesitancy with leaving banking (having been an analyst to associate) promote has been lack of interest in wanting to do long-term work in the middle market.

I spent my analyst years at a MM/lower-MM IB and while I think MM investment banking and PE is good business, the work always felt somewhat insignificant in the grand scheme of things. Most of those businesses are highly domestic in focus, have somewhat unsophisticated management teams, and employ fairly simple capital structures. You make good fees selling them and in PE you can make good returns investing in them, but it feels like it can be very insular.

For me, I don't think it would be very fulfilling working in an office of only a handful of people and creating businesses that probably wouldn't shift the economy in any meaningful way if they disappeared tomorrow. I lateraled to an EB with the intention of working with legitimate global companies, highly sophisticated owners and managers, and advising on more complex capital advisory.

The vast majority of PE shops are lower-MM and MM focused and this is hence obviously where the vast majority of PE associates end up. For me, I think it'd be an awesome experience working at one of the larger funds that has the ability to do take-privates, do meaningful buy-and-builds, and employ some creative financial engineering to generate returns. The problem is there are only a handful of these spots in the world. Zero interest in ever being on the buying side of some of the companies I used to sell at the MM IB.

I think in summary, the ability to work on things that really affect the economy is an important motivating factor for me, even if it is on the advising side rather than the decision maker side.

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Jun 21, 2018

+1, same thought process.

That said, there is definitely a lot of value in building and growing a company even if it only makes it to the middle market scale. I also think that operationally focused MM funds would be interesting to work for (funds where you really sink your teeth into the busunesses and their strategies via board seats, secondments, strategy formulation etc).

Jun 21, 2018

Worked in banking for a few years, work now in PE. Hours are way better in PE until a deal goes live. PE pay is much worse, but vacation actually exists and my shop lets you work out, visit people in the industry, do whatever you want during downtime, people are nicer but more boring, you have to know your stuff or you're sniffed out immediately, even quicker than banking because there's an expectation that you know a lot. In banking you're just starting out and the only expectation is that you're smart which takes longer to disprove.

When i was in banking i absolutely hated it, but honestly, looking back, those were good years and it was a great place to start. I have crazy stories, made lifelong friends, and was absolutely out of my fucking mind because of no sleep and tons of stress, i mean i was a nut, but it's fun to look back on.

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Aug 20, 2018

I also remember the trench days fondly. Few things brings people together like spending the majority of their waking/living hours sitting next to each other enduring the trials of junior level white collar services.

Jun 21, 2018

A lot of bankers are also highly specialized, and their skills aren't transmutable to PE. For example, FIG bankers tend to stay in IB for their entire careers.

"Work ethic, work ethic" - Vince Vaughn
Aug 20, 2018

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