Why even bother going to a mega-fund?


I've read some comments and posts about how people pick IB groups based solely on MF placement but have wondered why that is? Why (besides $) does it make sense to leave one sweatshop IB group to go to another sweatshop PE fund that will kick you out after 2 years for B-school. I thought the banking->PE was for greener pastures? I just don't see the rationale. You can go from a top IB to a decent pe fund and still get into a top MBA program.

Comments (14)

Apr 30, 2016 - 2:54pm

Because you're still going to get churned out to business school after 2 years at the smaller place too, and the branding of the megafund will better position you for opportunities post-mba most of the time.

Even if you still end up at HBS/GSB, it's not like everyone there will suddenly be on an even playing field, and post-mba buy side recruiting is super competitive even at those schools

Apr 30, 2016 - 5:28pm

Who do you think MM PE firms hire for their post-MBAs? Esp at the top MM PE firms (culture/comp/rep etc) a large chunk of their VPs come from megafunds who went to HBS/GSB. In fact, I'm pretty sure my old PE firm would prefer to hire someone who worked at TPG and then went to HBS rather than one of our own associates from B-school (obviously dependent on firm, and there are definitely firms that prefer to promote internally, with or without B school - if you find a firm that does it it's a good sign as it shows people want to come back and they care about associate development). I would say base case for someone who did PE (megafund or MM) and then MBA and didn't get the promotion is either step down PE fund sizes or leave the industry (HF, corp dev - which are often very attractive opportunities). Coming back to a comparable size fund is actually fairly difficult, and moving up fund sizes is even more difficult.

Megafund keeps your optionality most open as you have more tiers of funds to move down to. Also some megafunds actually have good hours/culture and its office and group dependent. It's not as if megafund associates don't attend firm meetings, board meetings, work directly with management on big deals, all that stuff - usually its 1 associate per deal team no matter what firm you are at.

The last point is comp (not just for those 2 years). In the future, once you are out of the 2+2 program, there is more variation in salaries and comp packages even at the same level. Some funds, esp the smaller/unstructured ones, will peg your comp package based on what you were making previously and step up from there, and they will have the headhunter get your old comp trajectory as a result. Since megafunds usually pay better (with some outliers), you'll prob be given better starting packages + better room to negotiate upwards after your PE program

Best Response
Apr 30, 2016 - 5:47pm

This will sound snobby, but it's valid to consider.

Some people are on such a trajectory that for intangible reasons (their own mental happiness or sense of fulfillment, family expectations, social standing among peers from home/school/bank, etc.), after doing Exeter or Andover > Harvard or Wharton > BX M&A or GS FIG ... it's almost expected that they continue on to KKR or Carlyle before proceeding to HBS or GSB.

Separate from all that, people who are planning for a long career in high finance generally take the time to study how the industry works so they can plan appropriately for each career step. The reality is that PE is like a game of musical chairs: there are fewer seats the longer the game goes on.

That first associate job is tough enough to get: you're going up against the crème de la crème (2300+ SAT, 3.8+ GPA, H/Y/P/W, GS/MS/BX banking groups) for a handful of seats at firms like BX, TPG, Silver Lake, Apollo, Carlyle, Warburg, LGP, H&F, etc.

The next one is even harder. One year into your associate gig you're already starting your MBA application. You're carving out part of your precious free time to crush the GMAT. You're dropping $10-20k on "admissions consultants" who will more or less ghostwrite your essays. You're talking to all the alumni of your boarding school/college/banking group/PE firm who are in school at Harvard or Stanford or recently graduated so you can get "insight on the application process" and "an idea of the culture of the school" (but are really just brown-nosing for a friendly word they can drop to the adcom). You're deepthroating even further at work so the partners of your firm will write glowing recommendations to their alma mater (and, depending on the firm, make the shadowy phone calls that take all the weight off your shoulders in the admissions process).

Once at school you're in full-on networking mode. There are fewer post-MBA roles available than the number of people who entered school in your class with prior PE experience. That means the guy from TPG's angling just as hard as you for a seat at a great middle market shop offering that rare partner-track position.

In short: the best people want the best roles. That's always held true. Further: the smartest people know how tough the competition is and start working to accrue every advantage to their candidacy they can. That means they want the firm with the biggest brand and strongest alumni base, a crack at the most high-profile deals that will make their resume pop, and a seat that lets them interact with the best service providers (banks, law firms, consultancies, etc.) that will give them a strong network for their later years in the industry.

I am permanently behind on PMs, it's not personal.

Apr 30, 2016 - 9:02pm

Echoing the above, pretty much for prestige, experience, branding, and networking. I do think we will start to see a trend away from this though as megafunds start to become even more competitive to reach partner at, PE performance in general continues to decline, and comp at the associate level for banks and PE continues to narrow.

May 3, 2016 - 1:02am

Sounds like the best course of action to follow to avoid all that headache is to find a good MM PE firm that can put on a partner track right post your 2 year IBD. That way you don't have to go to B-School and can stay in PE.

Some funds also send their associates to get an MBA and then hire them back post-MBA. This sounds like another great situation for those who want two year extremely expensive vacation.

May 3, 2016 - 11:20pm

This thread is scaring me. I am a first year banking analyst at an EB exiting in a year to a relatively small MM PE fund with great name recognition but slightly lower-than-market comp. I really like the people and business school exit ops from the fund are strong. Any tips how to position myself for this game of musical chairs? Planning on taking the GMAT before I get to PE and continuing to network. Also will need to unpeg my comp, hopefully business school would help with that.

Jul 6, 2020 - 11:08pm

Megafunds give you better opportunities for business school and allow you to go to any level fund post-MBA. Even at HBS and GSB, the KKR guy has better opportunities to go to another MF or and UMM fund than a guy from a no name middle market at the same school. Landing a great post-MBA gig is even more important than pre-MBA, since you will start reaching the upper levels where carry will lock you in to a fund. You'd be better off at an UMM or MF in terms of long term career comp, so it's better to get locked in there. Also, if you end up hating where you are, moving downstream is easier than moving upstream. Logically, the farther up the stream you are, the more room there is to go down.

When I’m no longer rapping, I want to open up an ice cream parlor and call myself Scoop Dogg
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