Why does everyone want Private Equity?

bbgalr's picture
Rank: Senior Monkey | 70

Here's a question for all you Analysts in IBD.

Why is everyone so obsessed with exit opps of IBD, group placement, and moving into PE? Why don't people want to stay on with banking and move up to the Associate position? From what I hear, the hours average out to about the same (70-90 hrs/wk) and the pay is more or less the same as well (~200k-250k). I just don't see why everyone is so crazy about moving into PE. What's the appeal of it?

Correct me if I'm wrong...the info above is just from what I've read/heard. I'm just curious on the topic.

Comments (160)

May 7, 2014

Prestige whores. But I think it's also because people think that in the long run it pays more. Also, people like me find the idea of PE more captivating. But this is an outsiders perspective

    • 1
May 7, 2014

Because they have that rare ability to use search bars, and have concluded that the pros outweigh the cons.

    • 3
May 7, 2014

I come from a non-traditional background for PE and have around 15 yrs experience, but I wanted it and like it because I enjoy the investing aspect of it (rather than the sell side, and there's nothing wrong with sell side, in some ways as you get to the upper levels of both IB may be less stressful) and I've always been involved moreso in growth equity (usually control though) and being operationally focused where, for example, we'll buy privately held co's that need something(s) to make it to the next level (new management, capital stack, acct systems and controls, operations workflow, etc) so I've been able to roll my sleeves up and get involved with a variety of different companies in various industries.

The money ain't half bad but honestly there are probably better and less stressful ways to make money.

    • 2
May 8, 2014

Do you mind sharing your route into PE? I am currently working in what would be considered a non-traditional background for PE and would be interested in discussing my options with you if your situation was at all similar to mine. I can PM you if that's easier. Thanks.

May 8, 2014

Will do in a bit.

Best Response
May 8, 2014

@Hamburglar: I went to a semi target school on the east coast and had no idea what I wanted to do with my life and I did no campus recruiting. I did a few internships during school (including ones at a boutique IB and PE firms in Boston) but would have been happy bartending on a Caribbean island. However, I am a born networker and very much an extrovert so somehow (I know how but it's too long of a story) I ended up with an offer at a real estate PE firm in San Fran-honestly, there was no great plan or intention on my part, I just wanted to move out west so I pursued any job that would get me there and this one paid well and sounded interesting so I accepted it. This was in the mid 90's and PE in general was a much less structured and popular field and we were rolling into the dotcom boom so private equity, especially real estate, wasn't the field everyone wanted: people wanted to start the next dotcom that sold sock puppets or if they wanted finance they wanted tech banking doing IPO's with Frank or to be the next Henry Blodget. I did really well at the real estate firm, partly because I worked hard and more likely because the senior guys at the firm really liked me because I was the cool young guy to go out with who could pick girls up for them at bars (not bragging at all, but I think that a lot of advancing in the business world in general is because people like you-you need to be smart and good but there are tons of smart people who do good work who don't end up advancing very far). I had an offer to move up to associate but at the same time I became friends with an absolutely insane billionaire who bought companies, real estate, invested in start ups, and basically whatever else he wanted to do. I met him through the RE firm when we did a jv together, started golfing together, going out for drinks and hanging out in general. He liked me and offered me a position with him doing whatever he was doing, and like I said, he invested in anything he wanted anywhere he wanted, so as a young guy with nothing tying me down (no girlfriend, no kids, didn't own a place in SF etc) it sounded like a cool idea. Once again, I had no grand plan and I had no real experience investing in companies (like I said, he was insane and there was no reason to bring me on board), but he offered to pay me well and to give me pieces of what we did and he did a lot of international stuff so I figured I could make some money, learn something I didn't know, do interesting things and see the world.

Working with him was insane (I'm not kidding, he was nuts and also one of the smartest and sharpest guys I've ever met) but I got exposure to so many different aspects of business in general (acquiring companies, operating them at a high level, doing rollups, financing anything in traditional and non-traditional ways, doing business abroad) and so many types of deals (one of his favorite sayings was that he'd buy a cash flowing doghouse in Delhi if he could make money off of it) at a still relatively young age: he was basically like an attention deficit disorder private equity firm himself, investing his own money and when the equity got too big for him to do himself, bringing in institutional investors like PE firms (that's how I met him at the repe firm), banks, insurance co's, etc to finance deals. We more or less operated in the mid market space because that was the size of checks he could write and still maintain control of deals (most of the time, he also did some VC and project finance investing that were minority positions). After a little over 4 years of working together he met an Australian girl who was about 30 years his junior (he was my dad's age, she was a year younger than me) who convinced him to slow down and I felt like settling down a little (there was a period of 13 months when I didn't have a permanent address and lived in hotels so slowing down wasn't getting a 9-5 job, I just wanted an address that wasn't the office-my family thought I was in the CIA or something insane). I made decent money (I hardly had any personal expenses and had his Centurion card that he didn't care if I used for fun occasionally), built some equity positions in the deals and most importantly I had made incredible contacts. We finished the live deals we were doing and I started reaching out to PE firms that I knew. Of all the things I did with him I liked investing in companies that were fundamentally sound (had a good product or service but were often in an overlooked or out of favor sector) but could be purchased for relatively inexpensively and needed help either financially, operationally or even in a biz dev sense, and could be grown and/or used as a platform to acquire other companies so I concentrated on PE firms that did those types of deals. I also enjoyed the mid and lower mid market because there's more room to grow and do something with the company rather than financial engineering a multi-billion dollar company to pay dividends using leverage. Using my and his network (I'll readily admit he opened the door for me and people knew that he wanted to slow down investing actively, meaning that there was a good chance that he'd become an LP in their fund, which he did) I found a fund that met my criteria and negotiated a VP offer where I didn't have to start right away so I took a few months off and lived a life of debauchery in SE Asia. That was about a dozen years ago and I've since left the original firm, joined another and left that a few months ago and took some time off to spend with my family (and that's why I have time to spend on WSO). I'm starting something new in the investing world in the coming weeks with a few guys I know where we're going to use our money and a few uhnw backers (including my old boss) to do PE deals but without a fund. Having a fund is a blessing and a curse: you're constantly answering to LP's and you're forced to do deals because you have to deploy capital even if it's not the right time in the economic cycle or there's nothing good out there to acquire.

    • 20
May 7, 2014

cause the buyside is more fun than banking, period, screw the pay but its more interesting, you are investing, you have bankers throwing you ideas etc. etc. its just much more appealing (even on the junior level where the work is arguably pretty much the same). Its basically like banking but better

    • 2
May 7, 2014
GBB_19NHS:

cause the buyside is more fun than banking, period, screw the pay but its more interesting, you are investing, you have bankers throwing you ideas etc. etc. its just much more appealing (even on the junior level where the work is arguably pretty much the same). Its basically like banking but better

How about the due diligence part? Is it fun? Is it interesting? Do you like it? Do you enjoy it?

Sep 25, 2016
Sep 25, 2016
everythingsucks:

http://lmgtfy.com/?q=why+private+equity%3F

es I LOVE THIS, I'm going to use this all the time.

The answer to your question is 1) network 2) get involved 3) beef up your resume 4) repeat -happypantsmcgee

WSO is not your personal search function.

    • 1
Sep 25, 2016

LOL nice es.

Everyone has their own reason for it. Yes, there's a lot of money in it. Yes, there's generally a better lifestyle (as in, having a life outside of work...). Yes, it's prestigious. Yes, it can help you in the long run.

Sep 25, 2016

Wish i had a SB to give you but i blew my SB load pretty early...

Sep 25, 2016

Haha I'm glad you guys like it!

Sep 25, 2016
everythingsucks:

Haha I'm glad you guys like it!

Did you make that?

The answer to your question is 1) network 2) get involved 3) beef up your resume 4) repeat -happypantsmcgee

WSO is not your personal search function.

Sep 25, 2016
blackfinancier:
everythingsucks:

Haha I'm glad you guys like it!

Did you make that?

I wish! Just go to lmgtfy.com. You can make your own instructional videos very easily ;)

Sep 25, 2016

Plus people who work in private equity are wizards with the WSO search function.

In all seriousness, though, there have been a couple of recent threads on this very subject, you should be able to find some strong answers.

Sep 25, 2016

OP, i could tell you....but then i'd have to kill you.

    • 1
Sep 25, 2016

Money
Hours
Buyside>Sellside

Sep 25, 2016

Because its on "The Path"

    • 1
Sep 25, 2016

Money

Sep 25, 2016

lmgtfy is awesome. it's pretty clever. tear drop to the OP who has to research all by his lonesome.

Sep 25, 2016

he is a one man wolfpack

The answer to your question is 1) network 2) get involved 3) beef up your resume 4) repeat -happypantsmcgee

WSO is not your personal search function.

May 7, 2014

I agree the diligence part can be painful and especially in PE quite gruesome and long timed, you will participate in a lot of that if you do a buyside as a banker too so its nothing totally new. Its just part of the job to really understand what you are investing in and I do enjoy learning about new industries and companies, speaking to advisors, consultants etc.

    • 2
Jul 14, 2014

:)

Sep 25, 2016

i think most guys left IB after 2 years to get away from the lifestyle of being an analyst. given how busy the PE shops have been in the last year lifestyle hasnt been too great, and unless there is carry, comp is below IB.

Sep 25, 2016

uh...find me something better than PE and we'll talk

Sep 25, 2016

What are you talking about, comp is less than IB? That's the whole reason for doing it, lifestyle is both marginally better (or much better, depending on place) and the pay raise is fantastic.

Sep 25, 2016

Pay varies quite a bit by shop, but a decent rule of thumb would be that people are paid slighly more in PE (excluding carry, since this is not compensation) than they are in IB for a given workload.

Sep 25, 2016

Beyond the pay raise, in PE you are on analyzing companies from a acquiring perspective, rather than a relationship facilitating angle. Additionally, you are going to ceos and telling them what they need to do. That is pretty baller to me.

Sep 25, 2016

PE is superior from an experience perspective as the job entails interaction on all phases of the deal from reviewing "teasers" sent by bankers trying to solicit deals, to analyzes OMs, meeting with management, structuring financing, and closing deals, which you have spent months and months working on.

From my 2 years of experience (and I dont work at a huge PE firm like TPG, KKR, etc.) work schedule has been contingent upon deliverables and deal cycles. PE has been "hours of boredom and minutes of sheer terror" or whatever that adage entails.

In IBD facetime is a lot more significant thatn in PE and in PE you are never selling anything or kissing the asses of the deal team (as you do in IBD).

Sep 25, 2016

so how do the hours/lifestyle compare exactly?

Sep 25, 2016

PE is toast. Sorry to ruin the parade guys.

Sep 25, 2016

PoppingYourCollar is also a stupid fad. Sorry to ruin the parade, tool.

Sep 25, 2016

cause PE funds hire really attractive assistants to service you anyway you want..

I'm making it up as I go along.

Sep 25, 2016

hf>pe>>>>>>>>>>>>>>>>>>>>>>M&A

the choice between m&a and hf/pe comes down to:

Are you borderline retarded?

Do you want to be a slave for the rest of your life?

If the answer to both questions is no, you should gtfo of M&A

May 7, 2014

What GBB said. Plus the hours are not about the same aside from a few shops and pay gets increasingly better as you move up the ranks.

May 7, 2014
fearandloathinginca:

What GBB said. Plus the hours are not about the same aside from a few shops and pay gets increasingly better as you move up the ranks.

Can you tell us how easy it is to move up the ranks in PE, compared to banking? For example, what's the ratio of post-MBA associate slots to pre-MBA associate slots? What's ratio of VP slots to post-MBA associate slots?

May 7, 2014

Really depends on size/structure of the shop.

I haven't "moved up the ranks in PE" so my intel is what I've gathered from friends and colleagues. It seems as though most established funds will take 0-2 post MBA associates per year with the intention of them becoming VPs one day (which is why post-MBA PE recruiting is so tough). Again, size of pre-MBA associate slots depends on size/structure of the fund.

Sep 25, 2016

Which PE firm just denied you?

j/k

ou make very solid points. It's bound to happen with any sort of bubble. Already, returns are showing signs of thinning.

Either you sling crack rock or you got a wicked jump shot

Sep 25, 2016

You're absolutely right. It's a trend, and trends get watered down eventually. I'm just curious what the next big exit opp is going to be for IB's, if it doesn't stay hedge funds, VC, or PE.

Sep 25, 2016

I agree,

A very good point. However, I don't think incoming analsyts will realize that till they actually start reading bad numbers about the pe market in the news.

According to one freshman that I talked to recently (who also wants to go for PE), by the time he is done with his program (which is 4 years) and after that as an IB analyst (another 2 to 3 years), he's hoping that PE bubble will start rebounding by then.

Sep 25, 2016

the difference vs. VC or startup though is that PE funds don't blow up, they go out with a whimper as they struggle raising another fund. The cycle is long, and just with base salary (funded by mgmt fees guaranteed for next 9 years) I still make more than banking counterparts total comp, so...

it would actually help if bad investors could lose their shirts quickly and move out, but in PE they tend to hang around for a while, which pissed me off in a way...

and it's not like banks won't want to take back a former star analyst who moved buyside...

Sep 25, 2016

This is exactly why I'm sticking with IB. Over a period of decades, IBers have steadier and higher compensation.

Sep 25, 2016

Mis Ind, are you looking to do the 3rd year => associate promote route? Are you a 1st year, or 2nd year right now?

If you become a 3rd year, are the hours substantially better?

Also, are you planning on getting an MBA? Does your firm pay if you accept the associate offer but say you want to do the MBA before starting again?

Sep 25, 2016

The boom in private equity has a flip side which has been the relatively lackluster growth of public market capitalization in the U.S. and the actaul shrinking of the U.K. market. PE isn't growing out of no where, it is simply "stealing" capitalization from the public markets.

If PE does in fact slow down, investment banks are going to be in a world of shit in terms of M&A activity. Like the above poster said, a PE shop can live on the businesses, but a bank needs continual transactions.

Account Inactive

Sep 25, 2016

The banks may experience a drop in M&A fees when the PE craze fizzles, but you're missing the flip side - the IPO/transaction fees when the shops exit their investments. All this going-private activity you're concerned about has a limited time frame - over the next 5-7 years there will be tons of ramped up businesses going public again, which the banks will be able to capitalize on. That's the beauty of IB - it doesn't matter what the boom is - tech, PE, commodities, whatever - he banks will find ways to make money off of market activity. If there's a gold rush, you don't necessarily need to be the one trying to mine gold - the real money is made selling picks and shovels.

Sep 25, 2016

New article in the McKinsey Quarterly covers the private vs. public debate.

Link: http://www.mckinseyquarterly.com/article_abstract_... (Registration Required)

Sep 25, 2016

I don't think there is going to be huge wave of private companies going public. Even in today's low volatility market environment, ipos are proving difficult with floats of only 20%. I personally wouldn't care one way or another, but that's my take.

Account Inactive

Sep 25, 2016

Or maybe were just seeing the begining of a new trend in investment management. Maybe the era of mega huge mutual funds and retirement funds is coming to a close and all that capital will be distributed to smaller funds that can deploy capital more nimbly.
I think you have a point about hype but on the other hand all those rock star analyst that went tech still have the same skills and for all we know they transitioned to PE. So maybe the key isn't to sit back and say I'm not going to take an opportunity because it may have a bad outcome but to flexible and prepared to change directions at a monents notice.

May 7, 2014

phantom equity

Sep 25, 2016

It's a combination of better work/life balance, better money, and more prestige. Maybe a little less mind-numbing work too

I didn't say it was your fault, I said I was blaming you.

Sep 25, 2016

$

Sep 25, 2016

It's the swag.

Sep 25, 2016

Pretty good money with almost no risk.

Sep 25, 2016

From what I've heard, work/life balance is the biggest factor. People I know who continue in IB after 3 years are true masochists.

Sep 25, 2016
Vontropnats:

From what I've heard, work/life balance is the biggest factor. People I know who continue in IB after 3 years are true masochists.

Definitely this + $$. I'm really good friends with a girl whose father is managing partner at a very successful PE firm and he said the work/life balance is by far the best aspect of PE when it all boils down, even for his associates. But the hefty paychecks can't hurt either.

Sep 25, 2016
Sep 25, 2016

its one of the safest ways to make pretty decent cash without fucking your entire life.

banking is an option, but to do banking you need to be mentally ill.

I personally am most looking forward to not having to work with bunch of fucking lunatics anymore.

Sep 25, 2016

money money money

Sep 25, 2016

To avoid repeating what everyone else said, I'll just say that compared to other buyside opportunities (say a hedge fund), I like the fact that you can work on deals and actually examine every little detail of a company and its business model.

It's business at its finest, meeting with CEOs/CFOs, traveling and doing on-site evaluations, closing dinners and banker/sellside relations. The entire process is just fascinating to me. And if you're lucky enough to be operationally focused, there's a lot of interesting work in terms of product expansion post-acquisition.

Sep 25, 2016

Everything looks better in pink

May 7, 2014

As long as you have clients, you're at the wrong end of the puppet strings, regardless of the industry.

Although PE firms have 'clients' (LPs), typically the people dealing with the LPs are a different team to those doing the buyside activity.

Those doing the buyside activity - they are on the right end of the puppet strings.

What does it mean being at the right end of the puppet strings?
- Approaching a deal, you generally only have to know what questions to ask, not what the answers are - it's someone else's job to find out the answers and tell you
- While you work hard, your service providers (bankers, lawyers, accountants) keep working 3 - 6 hours after you've gone home
- You pay the fees, so everyone is nice to you
- You have the capital, so everyone is nice to you and you decide what direction the deal is heading

    • 3
May 7, 2014
SSits:

As long as you have clients, you're at the wrong end of the puppet strings, regardless of the industry.

Although PE firms have 'clients' (LPs), typically the people dealing with the LPs are a different team to those doing the buyside activity.

As long as you are a junior, your "clients" are your seniors. That is true in every industry.

The crucial question in PE career is, how easy it is to move from pre-MBA associate to post-MBA associate.

    • 1
May 7, 2014

I've worked as M&A/ECM lawyer servicing PE and IBs and buy-side PE/merchant banking. Even with seniors on top of me in the latter context, you're still much, much closer to the right end of the puppet strings than in client servicing land.

Money can also be better in PE land, but I wouldn't discount the desire to escape the demands of clients as a motivator for people to get to the buy-side. As you get older, money isn't the best compensation for spending your holidays and kids' birthday parties on conference calls with demanding clients.

    • 1
May 7, 2014

@"SSits" don't underestimate the LP pressure. I've always been in the MM and at megafunds you may have completely different teams dealing with LP's, but in the MM at higher levels the LP pressure is always there even if you're not the person who's in regular contact with them because if you're not that person it's most likely the sr. partner(s)/MD(s) who is, and he'll be on your ass if you're not sourcing and closing deals and if your acquisition doesn't pan out well in the long term. I'd imagine that at a MF the pressure is the same, there are just more people in the office.

The pressures of the IB and PE are similar and different, both sides with benefits and detractions, and this is only based on my experience in PE (non-traditional path into it) and knowing many bankers professionally and as good friends. At the more senior levels both need to bring in deals, which is difficult because there's intense competition. It may just be me thinking that the other side is easier, but I feel like banking is slightly easier because a lot of the risk is upfront pitching a client then closing the deal. You know rather quickly if you're going to win the mandate to sell the company or not and if you get the mandate there's a pretty good chance that the deal will close. In PE, and this is especially true if the deal involves an IB representing the company, there will most likely be an auction of some sort where you'll spend a lot of time and money doing due diligence and then there's a good chance you won't win the deal. Then you actually have to close the deal, which will take even more time, most likely months. And you're (at least in the MM) running much leaner than a bank so you're going to commit a fair amount of your firm's resources to closing the deal, and you (the sponsor) are responsible for managing all of the third parties (lawyers, accountants, consultants, etc) in addition to managing the lender, all of which cost real money: if the deal doesn't close the IB can at least away with a retainer and their expenses paid, legal, acct, consulting etc fees will be paid but the sponsor will be out real money because they paid them and walk away with nothing. The IB may collect all of the dd, but you have to read it in detail and know what it says and means. If you've sourced a deal without an IB involved, which is the best way because it doesn't get bidded up, then you have to commit firm resources to gather all of the dd because there's a good chance the target doesn't just have it all sitting around. Getting a privately held co, even if they're great companies, to, for example, simply get their accounting and finance systems to spit out the data you need to satisfy yourselves and the lender can be like teaching calculus to a cat.

But in either case-a banked deal or an off-market- let's say you close the acquisition. The banker can walk away at this point, happy to know that they've earned their fee regardless of what happens with the acquired company and move onto the next deal, and more likely move onto the other deals they're currently working on. The benefit to banking is that you're most likely doing more deals concurrently and are going to do more deals per annum so if one or two don't close, you have more live deals that will most likely close. The detraction is that when you come in on Jan 1 every year, you have to restart everything because you don't have any recurring revenue (obviously not literally, you're most likely in the middle of deals and have things in the pipeline) and you're not building carry. As the sponsor, this is where a lot of the work and worry starts. You now have to do something with this newly acquired company, be it operational improvements, follow on acq's, etc. to try to increase its value. Sure, you get the 2% to keep the lights on, but you're mainly in it for the carried interest, which can and does take years to realize. And if something adverse happens to your portfolio companies or the industry in which they exist, the economy goes south when you'd like to exit and multiples go down, aliens invade or whatever, there's a chance you may have just spent the better part of a decade of your life and not walk away with much. See 03-06 vintage funds and their returns: a lot of them didn't even hit their hurdles. The banker can most likely get a big cash bonus and put it in the bank (I will admit to not knowing what's currently going on at the publicly traded BB's who are doling out bonuses in restricted stock, cash paid over years and all the BS that the govt and media pressure is forcing on them).

And that whole time you've had LP's (and if not LP's themselves, someone higher up than you in your fund putting pressure on you because the LP's are putting pressure on them) putting pressure on you to make acquisitions, then make operational improvements, issue leveraged dividends or whatever it is you say you do that sets you apart from the next guy, then perform exits. And LP's are being much more difficult on fees and carry now than they were even 5 or 7 years ago (those "extra" consulting, acq, financing etc fees are being paid back to LP's or counted against the main 2% management fees) and are pushing for euro style carries or hard escrowing early exit carries for clawbacks.

Yes, the person in PE has a better chance of making more money in the long run but it's over a longer time period with more performance and market/general economic conditions risk than being an M&A banker. It may sound more prestigious to industry people, but to anyone outside finance, we all do the same thing and they don't even understand what that is so if you're trying to impress a girl at a bar who's in advertising, a doctor at the country club or your neighbor in the Hamptons, they have no idea how IB and PE are different.

Sorry, didn't set out to write a novel.

    • 11
Sep 25, 2016

I personally chose PE because it played a lot more to the entrepreneur in me. My shop becomes very involved in our portfolio companies. In my first year, besides the transaction work, I also developed budgetary models and helped with business development. I also have the benefit of working at a shop that does some IB work so I have seen both sides. PE is much more hands on.

I am a first year analyst.

May 7, 2014

great post

May 8, 2014

Well said. SB'd

Progress is impossible without change...

May 7, 2014

Carried Interest.

May 7, 2014

I can see what you mean with the client pressure/work-life balance.

But doesn't work-life balance get a lot better once you hit VP and above? In terms of hours, I've heard the VP really isn't that bad.

Not sure how this translates in terms of being at the whim of your clients. Are VPs still expected to be available for clients at any given moment? Anyone with experience want to speak to this?

May 7, 2014
makash9:

But doesn't work-life balance get a lot better once you hit VP and above?

Based on the number of senior bankers and big law and big accounting partners I've dragged onto teleconferences in the middle of their vacation or kid's birthday parties because I'm starting at impending deadlines on one of my deals - not really. Maybe a little better.

May 7, 2014
SSits:
"makash9":

But doesn't work-life balance get a lot better once you hit VP and above?

Based on the number of senior bankers and big law and big accounting partners I've dragged onto teleconferences in the middle of their vacation or kid's birthday parties because I'm starting at impending deadlines on one of my deals - not really. Maybe a little better.

This sort of things happen at VP level, and occasionally at ED level, for they are the ones actually running the deal process, but rarely at MD level unless MD wants to be informed and involved in the details. If your experience is different, maybe you are an unusually demanding client.

And even at VP level, it happens only during certain phases of the deal process. VP attends the teleconference, but the grunt work is passed down to associates and analysts anyway.

May 7, 2014

Disclaimer: spent a year in trading, currently in banking, moving to PE in a year

Banking is a much more stable job than in PE. Competition is less intense in banking and there is a natural progression of moving up the ranks. As long as you are willing to be on call and service your clients at a moment's notice, the work really isn't that difficult, until you reach MD, when you have to build relationships and bring in deals.

On the PE side of things, competition is more intense, and because you are actually risking capital, there is a larger and swifter downside. Not to mention, most PE associate programs are 2 and out, and getting a post-MBA position is no cake walk. If anything, I wouldn't be surprised if the probability weighted earnings in banking exceeded that of PE. So why do people choose to move from PE to banking? I think for a variety of reasons (in no particular order):

1. The prestige of PE/aggressive recruiting tactics/herd mentality
2. The short term, 2 year appeal of PE (theoretically more pay with better hours)
3. Interest in becoming an investor rather than an advisor/salesperson (which should be the main draw, but I genuinely believe those who are the most passionate about investing tend to go down the HF route)
4. The nature of the work: echoing what was said here about having more autonomy, working more on your own schedule
5. Different/broader skillset: the banking learning curve really plateaus after a few months and really doesn't pick up again until you become a VP and need more industry knowledge/client relationships, the work in PE is generally more interesting/intellectually challenging; PE work is arguably closer to the operational side, and allows you to develop a very broad network; in PE, you are developing more of an investing skillset and think about companies more holistically than an analyst/associate role in banking or even arguably a VP/MD
6. 2 more years of keeping your doors open while you figure out what to do: the 2 years in banking + 2 years in PE is a truly dynamic career path; in theory this opens up doors to (or at least leaves doors open) to a continued career in PE, a good shot at a top b school, working at a portfolio company, corporate, start ups, HFs, VC)

    • 3
May 7, 2014

This was a really informative post answering my original question.

I guess I didn't realize the fact that once you take on Associate in IB, then you really cut off the possibility for MBA since it doesn't make sense to do Associate -> MBA -> Post-MBA Associate.

Another question, you said most PE firms are 2 years and done. Do most people usually end up staying in PE for the long run? Isn't it very difficult to make it to partner level in PE?

May 8, 2014

Nothing like making the PE grunts lives living hell by sending them to a cold place in the middle of the winter to sort through a mountain of paper work.

But back to the question at hand. It depends on personality, I honestly don't think enough 2nd and 3rd year bankers look at that question hard enough. They just want to get to the promised land of the buy side.

Follow the shit your fellow monkeys say @shitWSOsays

Life is hard, it's even harder when you're stupid - John Wayne

May 8, 2014

Might be stating the obvious here but do most banking analysts not hate their jobs and banking? PE is at least different, maybe not different enough, but still...different.

May 8, 2014

Do you really think that after 2 years banking, 2 years PE, 2 years top b-school, you wouldn't be one of the most desirable candidates for a banking associate program (given you've lost 4 years of upward mobility). Also, most banking analysts maintain great relationships with their firms even after they leave for PE. I know my group would take me back as an associate in a heart beat after I did 2 years in PE.

Also, entering the corporate world after 2 years in banking, 2 years in PE, and possibly 2 years in b-school, you are likely to enter at a much higher level and progress up the ranks much faster. I know people who joined as the head of corp dev of multi billion dollar portfolio companies after a 2 year stint in PE. The pay once you reach those levels in corporate is nothing to scoff, especially when you include the equity you'll be getting in your firm.

My point here is that yes PE might not be as stable as banking and often times, people don't stay in PE, but the skills and resume they develop in this 2+2(+2) path opens up doors to some incredible opportunities, which are often more attractive then working your way up the banking ladder from when all is said and done. There are plenty of jobs out there that are more interesting, offer a better quality of life, and comparable if not better pay than banking, and following the yellow brick road of banking, PE, and potentially bschool opens up plenty of doors to these amazing opportunities.

May 8, 2014

I'm at a small PE firm, but here's what I like about it:

1. My firm has insane flexibility in terms of work/life balance.
2. I enjoy trying to source deals and networking.
3. Once deals come in I like reviewing CIM's and putting together deal structures, and the negotiation process.
4. We see a ton of different kinds of businesses and meet a lot of interesting people.
5. I like due diligence from a buy side perspective because we have a stake in it.
6. We get heavily involved in the operational side of our businesses which I thoroughly enjoy.
7. Our job is to work with our management teams to build our portfolio businesses, which involves going to board meetings and participating on an advisory level without having to get into the boring details. It also involves sourcing bolt on acquisitions which I actually really enjoy doing.
8. I get to participate in strategic planning which I love.
9. Our investors are really great to work with and I like getting to know them.
10. The pay.

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May 8, 2014

An associate I know at a bulge bracket bank did 2 years in banking, less than a year in PE (hated it), and went back to banking as an associate. No losses from leaving banking in the first place whatsoever.

It is also unfair to compare 2 years as an associate with 2 years in business school. The fair comparison is doing 2+2 in banking / PE versus 3 years as a banking analyst, so you are right that you would be working an extra year to get to the associate level if you do PE. But you are also probably making slightly more money (or at least have a better lifestyle) for two years as a PE associate (versus a 3rd year analyst and 1st year banking associate).

May 8, 2014

"Of all the things I did with him I liked investing in companies that were fundamentally sound (had a good product or service but were often in an overlooked or out of favor sector) but could be purchased for relatively inexpensively and needed help either financially, operationally or even in a biz dev sense, and could be grown and/or used as a platform to acquire other companies so I concentrated on PE firms that did those types of deals."

I think this is the aspect of PE/private market investing that speaks to me. On paper, it sounds like you are getting amazing exposure to the high level operational and fundamental investing/deal making skillset, which can really be carried over into a lot of other pursuits. I think it would be a dream of mine to start a SPAC one day and do some Buffet-like acquisitions. Buy undervalued, fundamentally solid companies and not have to worry about exiting them or the constant pressure of LPs.

May 8, 2014

SPACs are interesting. I've briefly looked into them in the past and we (the guys and I that are starting up a new firm) have mentioned it as something to possibly do in the future but I'm not too sure about it. SPACs are something that I don't know much about in the way of details-I'd like to hear from people who do know more about them or have direct experience with them. I have a friend who raised one and he got burned, although that may have been due to his specific circumstances: they raised money to acquire a company in India and he complained about the restrictions placed on them about having to hit very specific acquisition parameters, which they didn't hit in the 12 or 18 months you have to sign up an acquisition. They had to return the money and were out a decent amount of money between the cost to set up the spac and fund the operations. I'd be interested to know if more restrictions were placed on them because it was non-US or if it's like that domestically as well.

One of the problems with a SPAC is that you end up as a public company. If LP's are bad, the reporting requirements of a public company, dealing with quarterly earnings and public investors is a royal pain in the ass. When I worked for the billionaire we took a company public on the LSE's AIM and held a decent portion of the publicly traded shares and somehow as a 20 something year old I was the FD for the first six months it was public (we were locked up from selling shares and he wanted someone to make sure his interests were being represented). I really, really hated that.

And I do apologize to the OP if I've hijacked your thread.

May 9, 2014

SPACs are only interesting to bankers, lawyers, and people who don't know anything about SPACs. The entire concept is a disaster given the fee structure and dilution hurdle.

EDIT: Comment above is not meant to be rude or condescending but based on my experience, the 10 year historical track record, and all of the supporting data SPACs have been a terrible investment vehicle for sponsors. I definitely know a handful of guys who did well with various unit and warrant trading strategies but the biggest beneficiaries were those who earned a fee.

All great comments with respect to why PE above. One thing worth noting is the diversity of experience that one can experience across funds and strategies. Most bankers share relatively common experiences over the course of a career whereas the PE experience varies widely.

While the due diligence process allows you to dig into companies and learn about industries the process can be extremely arduous and monotonous. Even though most PE shops have plenty of advisors along the way (lawyers, consultants, etc.) you are still expected to review all 50,000 pages of material in a data-room. You can only read so many tax, legal, etc. docs before you want to throw up.

May 9, 2014

Not taken as rude or condescending. I'd like to hear about them honestly and beyond the one guy I know who raised one that didn't turn out well and then just hearsay. I'll most likely never do one but a lawyer friend recently brought it up regarding a deal he was soft pitching (like any good atty, he wants to be an investor or banker) and then someone here mentioned it. Do you trade them and don't like them from that angle or do you have experience in raising them or at one? From an investment pov I don't see the attraction-too much dilution.

And come on, sifting through thousands of pages of dd rocks. There's nothing quite as exhilarating as reading executive employment agreements...

May 9, 2014

There are many reasons one would move to PE.

Some find the work to be significantly more interesting.

Assuming similar levels of "prestige" and size, private equity means much more money in the long-term.

Generally better hours.

Those are the main three.

May 11, 2014

Why do suburban housewives buy ugly Louis Vuitton knock off handbags? There's nothing aesthetically appealing about the puke green print, they just want it because other people have/want it and they think it tells people some-(untruth)-thing about them.

The same way fat suburbanites try to pass it off as the real thing, young douche nozzles try to pass their IBD/PE careers off as the real thing (i.e., something they are actually passionate about and makes them happy). That's why when they're talking to their contemporaries in Banking/PE they commiserate and when they're talking to non-finance folk they act like they're as content as can be.

They're all sheep and instead of figuring out exactly what it is that will make them happy, they instead strive to attain something they know other people want (also for the same misguided reasons).

May 11, 2014

Correct me if I'm wrong, but weren't you in PE? Did you not enjoy it due to high expectations?

May 11, 2014

The question was about why "everyone" wants private equity, and not for individuals to reflect on their personal experiences. I personally went into PE because I come from a family comprised of generations of coal miners, but my delicate lung bronchioles and defined bone structure couldn't handle the fine coal dust and soot ever present in bowels of Appalachia.

In all seriousness, I think people tend to get pregnant with the wonders of the banking/buy-side and are reluctant to admit to themselves that its not quite what they thought it would be. They're inclined to pursue that path because they've always been at the top of their class in HS/Ivy UG/Banking, and so if you're dealt the genetic lottery of freak athleticism it behooves you to play football. I never quite had that profile and so getting to Banking/PE was a much less obvious and "it-would-behoove-you-to" path for me.

Its like finding an invitation on the sidewalk for a party directly in front of the open window for the party with great music and beautiful girls inside. You should by all means go inside and check it out. Some people will walk around and figure out its not really their scene and just walk out, while other's will be so enraptured by the idea of being at such an exclusive place they'll walk around and refuse to leave even thought their bored out of their mind. I'm certainly not saying that anyone (no matter their stats) find a PE career is handed to e

May 12, 2014
Marcus_Halberstram:

Why do suburban housewives buy ugly Louis Vuitton knock off handbags? There's nothing aesthetically appealing about the puke green print, they just want it because other people have/want it and they think it tells people some-(untruth)-thing about them.

The same way fat suburbanites try to pass it off as the real thing, young douche nozzles try to pass their IBD/PE careers off as the real thing (i.e., something they are actually passionate about and makes them happy). That's why when they're talking to their contemporaries in Banking/PE they commiserate and when they're talking to non-finance folk they act like they're as content as can be.

They're all sheep and instead of figuring out exactly what it is that will make them happy, they instead strive to attain something they know other people want (also for the same misguided reasons).

Speaking as someone who wholeheartedly owns his own biases, I think this is a bit harsh. Finance might not be the dream job, but it's surely preferable to a great number of other rote professions people pursue. Not everyone can be a successful entrepreneur, nice though that may sound.

May 12, 2014

I was speaking more to the motivating factor in the masses pursuing private equity as a career, and less about the merits of the career itself.

I would suppose that the proportion of people who leave the professional after their 2 or so years is indicative of level of sophistication in discerningly assessing it as a career option vs. just trying to get a job at the more desirable bank while in UG and the most desirable PE firm while in banking.

May 12, 2014

Some pretty harsh words against Private Equity here. I think everyone that has worked in the industry develops a pretty strong opinion of it. It isn't surprising, people in PE are usually extremely career oriented. Some thoughts:

1) The PE industry is very different depending on the particular company. Some roles require sourcing in which your day is spent calling up CEOs hoping to develop a relationship. Other roles are transaction oriented where you're doing a ton of due diligence. The size of the fund also matters. Does your deal team consist of 4 people or dozens? Are associates invited to board meetings, management presentations, facility tours, closing parties?
2) Hours worked can also vary but it is so important that it gets its own bullet. There are PE funds out there that work you banker hours. Others have a better balance with closer to 70 hours. Still others can get as low as 50-60. Some require frequent travel at junior levels.

The above lead to extremely different experiences for people who work in Private Equity. It is very dissimilar to investment banking where all of the large players are nearly identical and the experience is streamlined. Most people on WSO have only worked at one type of PE firm (myself included) and therefore don't have an appreciation for what it is like to work at the others. This leads to disagreement.

Rather than saying whether or not PE is good / bad, I think it is important to determine what type of PE firm fits your personality. Some people are enamored by the idea of working on billion dollar transactions and interacting with names that pop up on the WSJ every week. Others thrive in a sourcing role and love the idea of hitting the phones and making it happen. Still others enjoy learning everything there is to know about smaller companies and having a say in their strategic direction. This is why it is so important to carefully choose a PE firm "type" as an analyst before jumping to the buyside.

My experience has been in the lower middle market doing transaction oriented work with small deal teams, frequent travel, and typical hours closer to 50-60. I can honestly say that I've found a fit. If someone were to offer me a job at a megafund or a large cap I wouldn't even entertain the conversation. While it is still PE, the characteristics of those funds are so vastly different from what I look for in a career that I would be miserable.

To answer the OP's question of why jump to the buyside? For me, it was because the characteristics of lower middle market PE provided many things that banking did not:

1) Hours. This is generally the most important for everyone. The PE firms that I have worked at enable near complete control over your schedule. I rarely did weekend work in my four years on the buyside, stayed past 10pm fewer than 10 times, and always used all of my vacation days. Most banking MDs can't even say that.
2) Being the client. Don't underestimate this. It is the source of reduced hours and scheduling flexibility. It also means that everyone takes your call (or calls you back on the first try) and responds to your messages quickly. All of your service providers are always nice to you. Always.
3) Deal Control. This wasn't the case when I was a pre-MBA associate, but once I had leadership responsibility I gained a lot of deal control. If a certain deal or market interests you, you can pursue it. If you don't believe a company will grow fast enough, bam -- kill the deal and don't waste any more time.
4) Interesting Work. A lot of people complain that PE is just more modeling, powerpoint, and due diligence. However, this is only true at the pre-MBA level. Once you get promoted you no longer toil endlessly over modeling and presentations. While this work still exists, it is minimal which frees up your time to focus on truly understanding businesses and working with management. When you start comparing this work to other industries (for example, all my peers from undergrad), the work is quite dynamic and fun.
5) Compensation. Even with significantly reduced hours, I was making more as a pre-MBA associate than analysts at bulge brackets. Four years into my career I was given a multi-million dollar carried interest position. On an annual basis my pay was on par with many directors. I didn't even have (or want) to live in NYC! While money has never been a real pursuit of mine (otherwise I wouldn't have gone back to b-school), it certainly doesn't hurt!

There are plenty of other reasons, but this is getting a bit long. Just realize that PE can be an awesome career if you find a position that fits your values. This is true of any industry.

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May 12, 2014

Also to clarify for those who thought I was being critical of PE, my point isn't to say a career in PE is a puke green knock off handbag, the point was to say that the "everyone" pursuing this career isn't giving any thought to why they want it, they just go after it because everyone else seems to want it to.

And so if your question is why do they all want it, the answer is that its generally a pretty empty decision making process. And that has absolutely nothing to do with the merits of a career in PE.

May 13, 2014

Perhaps it's a grass is greener conversation I've been having with a friend but the comment was more so meant to say that working in the corporate world isn't a dead end and can be as nearly as lucrative or more lucrative than banking or pe at the upper end and can be more stable. Yes, there are more politics and maneuvering to the top and one can encounter more uncontrollable obstacles (the CEO not leaving for 15 years, etc) but it's not as if banking/pe doesn't have politics (although it probably is more purely performance driven) and if you reach MD you're most likely making some serious money and you don't necessarily have to be the in the c-level suite where you make the most in corporate america (i.e. the MD of an IB is one of many and you doesn't have to be the CEO). But, and I'm really basing this on a few good friends who are executives at operating companies and not a scientific survey, they tend to move companies: if it looks like the person(s) above them isn't leaving, they leave the company and there are a large number of options for them. I have a friend who left his company because they wanted him to move from CT to Cincinnati and he easily landed with another major cpg in the CT/NY area. Or another friend who started at an industrial Fortune 10 company in a management training program (I think he's 45 at this point), worked his experience into tech and is a serial CEO and executive in the Valley and because he has kids, he purposefully moved to the Bay Area because he knew that he'd be able to always find work while never having to move (and that was moving from Boston so he wasn't in Evanston...)

The travel argument can be made and my friends and contacts reaching the top at F500 co's travel all the time, but so do I, my friends, colleagues and contacts in IB/PE. I will absolutely agree that my friends in corporates tend to travel all over the globe more often and while there may be some bankers/pe guys who do that, they would be in the minority (sure I've had to go to Shenzen or Delhi and Bangalore to check out some manufacturing or tech/back office operation occasionally, but I don't have to regularly go there like some of my friends).

And like I said in the beginning of this post, it was probably just based on a couple of guys, both of whom chose IB and PE so I'm not more partial to personally operating a company, talking about how much we see some executives get paid when they're not that good and who haven't done much for their businesses. At least in upper levels of IB and PE your comp is very closely related to your performance and if you don't perform, you're not going to be there for long (or maybe that's a detraction for us...).

May 13, 2014

The CEO route is definitely more perilous in terms of politics/timing/opportunity getting in your way. They also work much longer hours than a partner at a PE firm and spend way more time on the road. I'd rather buy my own lower-MM company, own it outright or at least as majority owner, and build it up from there. Yeah, a lot of work, but definitely less than the corporate CEO and you control all the cash coming out of it and can choose to cash flow out however you want. Much more rewarding than both PE and corporate route but more risky.

Maybe down the road if/when I get sick of PE I'll move over to that, but for now this is a pretty good path.

May 13, 2014
Khayembii:

I'd rather buy my own lower-MM company, own it outright or at least as majority owner, and build it up from there.

Serious question: How do you fund this? You mean your own money once you've been working for a couple decades?

Also, and I know we're getting a little ahead of ourselves, but would you seek out a "growth" business/company and hope for better and better sales, or just a consistent cash-flowing business that can be picked up at a dirt cheap bargain and pay for itself through EBITDA?

May 14, 2014
bortz911:
Khayembii:

I'd rather buy my own lower-MM company, own it outright or at least as majority owner, and build it up from there.

Serious question: How do you fund this? You mean your own money once you've been working for a couple decades?

Also, and I know we're getting a little ahead of ourselves, but would you seek out a "growth" business/company and hope for better and better sales, or just a consistent cash-flowing business that can be picked up at a dirt cheap bargain and pay for itself through EBITDA?

I don't know. I'm 26 and work in private equity...

May 14, 2014

It's a very good question because I think when you've done the finance gig long enough to amass enough personal wealth to acquire a company more or less outright that you can "grow", call it whatever you want in technical terms as a growth equity investment or a cash flowing business that you can acquire (personally buying a pe target that you can fix, finance, open up new markets in a biz dev way, etc), you have either acquired enough personal wealth to just retire or you've acquired enough expenses such as homes, private schooling and the such, and that you're a deal addict, that it's tough to leave IB/PE and risk the nest egg for another venture. Although I have to say I continually look at buying a bar on a Caribbean island and saying F it, I just don't think I can raise kids there. And, as a +/-40 yr old I'd most likely become an alcoholic and my wife and kids would leave me because I'd be twiddling my thumbs and be an annoying pos. Or just drunk. But as an example of something that was done and I'm not sure could be done in this much more institutional world:

I have a family member who did something we should all emulate and it's probably why I've always liked bricks and mortar cash flowing and simple types of businesses. He's a generation older than I (and I'm +/-40 so he's mid-late 60's now). He started working on Wall St out of junior college (and he was far from any pedigree-jr college- and a father who was blue collar- but to break in back in the 60's/70's it was a much more open business in certain ways: you could start as a runner and make it big as a trader then go way beyond that, see Sandy Weill or Lew Ranieri). After a while he figured he didn't always want to be a transactional person or trader and liked the corporate finance department, what we'd now call IB/M&A, and it did help in those functions to have deep and old family contacts of which he had none so he left for a financial/operational role. He rose to become the second top finance guy in a large food distribution company, one of the big ones back in the day. Boring industry yes but it's an ideal cash flow business, and after a decade he was basically passed over for the CFO position with little chance of becoming the next CFO because he'd have to wait another 10 yrs for the CFO to retire so he decided to try to acquire a few grocery stores and the large publicly traded company said they'd sign for his loans-that's big, they co-signed a loan he had no business getting. After a few years of nothing (think late 80's/early 90's when the economy was bad) and blowing his savings and getting really lean, he found a 3 store chain to acquire for 12MM. Nothing big and in a shit location as far as lifestyle, but he knew it was a platform for acquisitions and as the grocery biz margins are extremely tight (think 2-3% when you're good), he brought in a great ops guy and as he paid down the loan and took very little out of the company, he acquired another store, then another. Now he has about 80 big box grocery stores in very un-cool and very cool locations worth north of 200MM and probably closer to 300MM (I only know the hard details because I tried to acquire the company and my pe firm at the time also had a BD license so when we tried to acquire him he said no, so the debt guy raised 150MM in debt for him and we got a fee-it was cool, I got to advise) . It took a him long time but he's been his own boss for a long time and hasn't answered to anyone.

I'd say that's the perfect way to go about it, and maybe it can happen today, but I would love to acquire a basic cash flowing platform that doesn't fluctuate much with the economy and that can be highly leveraged. Still looking for it. Or a bar on a small Caribbean island where I don't have to ever own a foot covering beyond flip flops.

May 14, 2014

so many reasons. just a few off the top of my head:

1) it REALLY sucks being a salesperson and being at the mercy of a client. they want something, you overpromise, kiss up, bend over and deliver. When you're in PE, you have no clients - you ARE the client. Really makes a difference.
2) pay is really not the same. associate pay be similar - but from there, the ceiling for PE is SIGNIFICANTLY higher than bankers
3) the type is work is much more interesting. Instead of putting together BS marketing materials, you actually do real work, analyses, etc. You have have to make real decisions that will have tangible outcomes.
4) hours are generally better - at least theyre more predicatble. Meaning you can actually plan stuff with family and friends on weekends, etc. Makes a big deal as you get older. No worries of a pitch that will burn your entire weekend that comes up at 5pm on a Friday.
5) prestige, baby

May 15, 2014
ledger123:

1) it REALLY sucks being a salesperson and being at the mercy of a client. they want something, you overpromise, kiss up, bend over and deliver. When you're in PE, you have no clients - you ARE the client. Really makes a difference.

After you reach certain level in PE, you would be expected to source deals. Sourcing deal in PE is much more salesperson-oriented than serving clients in banking.

ledger123:

2) pay is really not the same. associate pay be similar - but from there, the ceiling for PE is SIGNIFICANTLY higher than bankers

But moving up the ranks in PE is much slower, much more difficult, and much more uncertain than in banking.

ledger123:

3) the type is work is much more interesting. Instead of putting together BS marketing materials, you actually do real work, analyses, etc. You have have to make real decisions that will have tangible outcomes.

Any work in banking is far more interesting than the due diligence work in PE.

ledger123:

5) prestige, baby

Why so? Who told you so? Did the recruiters or PE people tell you that? If so, how do you know it's not just part of the recruiting tactics? If so, how do you know it serves your best interest, and not theirs?

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May 15, 2014
HedgeKing:
ledger123:

1) it REALLY sucks being a salesperson and being at the mercy of a client. they want something, you overpromise, kiss up, bend over and deliver. When you're in PE, you have no clients - you ARE the client. Really makes a difference.

After you reach certain level in PE, you would be expected to source deals. Sourcing deal in PE is much more salesperson-oriented than serving clients in banking.

ledger123:

2) pay is really not the same. associate pay be similar - but from there, the ceiling for PE is SIGNIFICANTLY higher than bankers

But moving up the ranks in PE is much slower, much more difficult, and much more uncertain than in banking.

ledger123:

3) the type is work is much more interesting. Instead of putting together BS marketing materials, you actually do real work, analyses, etc. You have have to make real decisions that will have tangible outcomes.

Any work in banking is far more interesting than the due diligence work in PE.

ledger123:

5) prestige, baby

Why so? Who told you so? Did the recruiters or PE people tell you that? If so, how do you know it's not just part of the recruiting tactics? If so, how do you know it serves your best interest, and not theirs?

are you actually in PE? Do you know? I've done banking (and this is during the golden age - I'm talking fat bonuses) and I've done PE for a few years now. All of your points are untrue and invalid to a certain extent. Partners at PE firms source deals?? Depends on the firm. At my firm, like most upper tier firms, we have professionals focused solely on sourcing deals and developing relationships. NONE of our VPs, principals, partners pick up the phone and cold-call CEOs and investment banks...

and if you've never done diligence on a comapny, then you wont learn about companies and industries. You really trying to tell me that formatting powerpoint and word is MORE interesting than learning how to operate, turnaround, grow companies?? get outta here. Lost all credibility with those comments...

May 14, 2014

Before I became so fervent about Private Equity, I thoroughly considered all my other career options: hedge funds and VC. Hedge funds definitely offered potential for "the bling," but as much as I would love to "arb" things, the lack of indubitable financial security and threat of independent decision making quickly scared me off. Venture Capital seemed quite trendy and even maybe fun, but the mere thought of working with fat, stinky, hippie techies that would come into my pristine office in "Free Kevin" t-shirts and cargo shorts (ugh) only to sully my Knoll desk with their dirty Tevas nearly made me barf all over my keyboard. PE was the obvious choice.

This is exactly how I decided.

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May 15, 2014

A lot of these comments need to be qualified:

Deal sourcing is a very, very minor part of the job for Partners at many PE firms. A lot of deal flow comes from investment banks that have been showing the PE firm deals for years. In fact, in many cases the name of the PE firm alone sources the deal. I've also done a fair amount of marketing myself through trade shows, conferences, flying around the country to meet with bankers, etc. It really isn't that bad when you're only doing it a few times a year. Most of our portfolio company CEOs are the ones who source the small, proprietary add-ons to our portfolio companies.

Yes, the carry portion of PE compensation can be super variable. But the base salaries in PE are already enormous, that even if a fund strikes out, the PE partner walks away just fine. Partner compensation in the LMM can exceed $1mm/year cash before taking into consideration carry. And the best part is that the PE firms fee stream endures through recessions because the management fees and monitoring fees continue to pay out. I saw very few PE layoffs compared to banking during the recession because the PE firms still had plenty of money to go around.

I agree that prestige matters far less or not at all as you become more senior. But from what I've witnessed most senior finance professionals tend to be friends with other wealthy individuals. And those people tend to understand the difference between "hedge fund rich" and "banker rich." So the prestige won't help you take home a chick on Friday night, it can improve your cache. [Personal note: I think this is a terrible reason to work in PE over banking and should hold no weight, but some people care a lot.]

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May 15, 2014

"Hedge fund rich and banker rich." Love it.

I'm not in NYC so simply because more people there are in finance in general the prestige thing may be more visible. Outside of NYC people have no clue what any of us do. And when you go to the Bay Area they look down on us because we're not inventing the next app that allows you to check in at a bathroom and instantly show on your FB feed how large your crap was.

May 15, 2014
CompBanker:

And those people tend to understand the difference between "hedge fund rich" and "banker rich."

True. However, "hedge fund rich" is much more difficult to achieve than "banker rich". Very few junior professionals entering PE or HF will ever achieve "hedge fund rich"; while a larger portion of bankers will achieve "banker rich".

Someone once said: Hedge fund is designed to make one person billionaire; while investment bank is designed to make many millionaires.

May 19, 2014

Always surprised by how much more interest there is for pe vs hf, pe at junior level just seems so fucking boring vs hf, it's not really an investment role at junior level, just very marginal improvement in banking...

May 20, 2014

Agree with better hours, and more analytic quality of work (although a big portion of whatever work you will work on will contain an element of BS in one way or another, just probably less so in PE)

Disagree on prestige. Noone outside of high finance recognizes the prestige behind Blackstone, KKR and Carlyle, and even less so for MM PE firms. However everyone recognizes the prestige behind being a "banker" (purposely vague) at Goldman Sachs or JP Morgan. If you are going to speak strictly in terms of prestige to the general population (or even women), then investment banks come on top, not PE firms.

May 20, 2014
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