Private Equity

I am by no means an expert or even a member of either industry. But one of the big differences as riverripper pointed out b/w the two is PE firms actually own the businesses and make actual investments in the companies. In ibanking, deal teams help with valuations and financial advisory services, and they make money by charging a fee for said services.

I can only speak to my own experience, but I worked at a bulge bracket bank as an analyst for 3 years then went to a large buyout fund (KKR/Blackstone/TPG).

As a more junior analyst my role was to put together various analysis such as equity comps, precedent transactions, debt comps, DCF, SoTP, LBO, financing, etc. Also responsible for a ton of presentation work, recoloring charts, aligning bar graphs and writing memos both external and internal... But 80% of the work I did was reviewed by an Associate who is responsible for "signing off on my work" before giving it to someone else who may also provide comments, etc. I was also responsible for carrying books to meetings, organizing stuff with administrative assistants, ordering dinner, etc.

As a third year analyst, I reaped the benefits of being a level in between a two year program analyst and an associate... got to leverage work of junior analysts, review it and pass it off as my own!

I have friends who went to quite a broad range of private funds, like the Megas down to small ones like GTCR, so the role varies quite a bit between funds, expertise and size.

Take for instance a mega fund, you (and I) are just a cog in a large wheel and are responsible for running diligence meetings with PwC (EY, KPMG, Deloitte) who are your accounting support guys, running legal docs with your internal and external counsel, running operating diligence meetings with Bain and Co (who are hired to dig super deep into a subset of questions that can break a deal) and working with the banks/mezz funds who will provide financing to make the deal happen. Next you are responsible for building massive financial model so detailed you have a line item for window cleaning expense (up to 100 tabs, down to row 25,000 through column HH) and you're accountable for every darn number in the spreadsheet. You are also responsible for digging deep in the dataroom which has tons of information (but thank God you have all your deal support guys to help out).

At some funds as someone mentioned are very much operational (BainCap, Golden Gate, Berkshire) who love consultants as their junior squad due to their operational expertise and often rely on those guys to help improve operations. The rest is rinse and repeat (unless you're at a distressed shop, VC, growth equity, etc)

Excellent insight, MegaPE.

One comment though: I wouldn't personally consider GTCR to be "small". $8B assets under management is fairly sizeable... even among PE standards.

I always consider "small" to be <$500M and "middle-market" to be $500M - $5B. Anything over $5B is large by my book.

Also from a career switching stand point, IB is pretty hard to break into (but not impossible), PE is even harder (a step closer towards impossible).

I went from investment banking to a pension fund where I focus on private equity co-investments. Mega's analysis is good but I'll add a couple points:

First of all it's a bigger difference as you go up the chain. You might to similar analyses as an associate but eventually as a managing director it's pretty much a completely different job. The main functional differences at the junior levels to me are:

1. As a banker you will probably work on various things other than acquisitions too. The obvious exception being if you are in an M&A group. Your focus will likely depend on the bank you work at and how it is organized. The industry will also be a factor if that's how your bank is set up- e.g. a tech guy is not going to do as much debt financing as a utilities guy. Wachovia is not going to do as much M&A as Goldman Sachs.

2. As a banker you'll spend a lot more time making what are basically sales presentations. At the end of the day investment bankers are salesmen.

what about PE from virtually no prior experience in the finance world (i'm coming from an engineering background)? impossible? almost impossible? would my chances be improved if i attended a top B-School? (or as it may be, a top finance b-school like NYU stern)? or would the most I could hope for be breaking into IB (which as I understand is also tough, but possibly not as tough as PE)?

Almost impossible unless you have some solid personal connections to PE partners. Go for IB instead, grind it out for a couple of years, and then take a look.

Post-MBA, most PE positions are meant to be "partner track" -- positions that you stick around in for a long time with the expectation of making partner one day. It's very difficult to nearly impossible to judge whether a guy with a couple years of engineering experience will be partner material at a PE firm.

It would be extremely difficult, but not impossible. Particularly if you went to a Harvard or a Wharton or someplace like that. Investment banking would be easier to break into than PE. But then, that is true for anybody with any type of experience.

You've got to focus on your strengths. If you are tech or biotech oriented you may be able to work your way into a VC position. If you're more civil engineering oriented maybe an infrastructure fund. You probably don't want to focus on funds like Apollo or TPG that are more financial engineering oriented (even though they would never describe themselves that way) because they like to hire guys with PE or IB experience. There are a lot of operational oriented PE funds that value non financial experience. At a different end of the spectrum maybe your math skills would appear to a quant fund. Within IB, there might be derivatives or structured products groups that place a premium on engineering backgrounds. I have seen guys with engineering backgrounds in a lot of positions throughout finance.

Networking is of utmost importance. Get into a great school and work your butt off and there's no reason you can't do it. But if you're not 100% committed, don't even bother because that's how much effort it's going to take though.

At this point it sounds like you have some thinking to do. PE and IB might have similar grunt work but down the road they're quite different career paths and you shouldn't make the decision based on pay or how easy it is to break in. Take the time to figure out what you really want to do.

If you are a career switcher (no banking or finance experience), what position would you get at an investment bank after you get your MBA? Analyst or Associate?

Associate.

Coming from a commercial real estate lending group (large cap REITs and large private developers) at one of the big 4 banks in the country (2 years as analyst > 6 month associate training program > associate), how difficult would it be to make the transition to PE after business school? Would the logical path be to do IB and then transition into PE if that's what I want to do? In the end, PE is what really interests me for my long-term plans, but I want to figure out the best way to get there.

If you have experience in PE and go to business school, it still isn't necessarily easy to go into PE after school. Ergo, for everyone else it is difficult / very difficult / impossible.

I know of one internship that doesn't require experience at a PE firm, but he would want some serious banking knowledge of some prof recommendations. You would only get an offer if you were lucky, did really well and worked free for the summer and the twelve months following while in 2nd year. That said, the guy recruiting for the role is a really sound chap.

That kind of fun and games.

how long would one be expected to work ibanking post-mba before trying to go pe?

Anywhere from a couple of years to a lifetime.

that's rough. but that's what i like most about this site, the blatant honesty. thanks.

I was asked to shed a bit more light on this as my original answer was rather flipant.

First, I know a guy who moved from an IB last week to a PE firm. He had spent one year in Lev Fin at a big bank. This isn't all the detail though - he has outstandingly good connections through family. The kind that mean things like this are significantly more probable.

The length of time is tricky - I have another friend who is top of his class in 2nd Year Associate. He is finding approaches from some distressed funds, though not the calibre that make you keen. This is the problem in the field - distressed funds can blow up real easy, as can some of the lesser known PE firms. Moving to a partnership has its risks, especially when the pool of assets is small.

But some folk will spend all their life interviewing with PE firms and having it never pan out. You move up in a bank, the places in PE firms become less. The population of PE firms is limited, the number of roles *way* less at every level compared to a bank.

I would think if you really wanted to move, a five year time horizon would be fair. But you would probably give up some Comp to force it to happen - this is the point where many who want PE might find they don't want PE quite so much. It will not be exactly a lateral hire.

Great, thanks for the answer. I guess the ideal would be to start one's own shop. Although then you join the sea of other PE startups and have to compete for deals and make a name for your fund.