Professional Documents
Culture Documents
The magic word: carry. It's true that a chosen few make 10-100s of millions
through carry in private equity, but this is a reality seen by very few. Here's some
insight from @cheese86 that explains carry and when/how to get it.
cheese86:
Carried interest is great, but most funds do not pay carry until after they earn 8-10%
annual returns over the life of the fund. In other words, many funds raised in the past
few years will probably never reach the carried interest level. Then the salaries (for
several years) come only out of the 2% (generally) management fee and with all of the
limited partners; the numbers are not as astronomical as you may think. Because, think
what else comes out of that 2% (flights to and from meetings, company overhead,
secretaries, technological infrastructure, other support employees). If your fund does
not hit the carry mark, your comp will resemble that of banking, possibly even less.
The work itself is another major reason many consider private equity as a career,
especially in contrast to investment banking. Here's some thoughts on the matter
from @HerSerendipity, a private equity associate.
Here are a few more reasons with some wonderful insight into private equity,
courtesy of @PEguy2011, a private equity partner.
Even at the senior levels, I don't think bankers generally have a solid grasp of
how a business is run. This isn't their fault - they are just the middle man in
an M&A deal and don't need to dig as much into the details. In PE, you're
literally working hand in hand with management teams to learn everything you
can about the business and build a valuation model to come up with the right
bid price and investment thesis.
The bottom line is when taking a deal to investment committee, you better damn well
know the business inside out, know every potential risk and mitigant, and be able to
answer any question the committee asks -- even as an associate -- because if the
committee asks the deal lead a question he can't answer, he'll look to you for help. I
think this is what I love most about PE... being able to learn about all sorts of different
businesses and business models. Now with all of the deals I've worked on, I can go into
a meeting with any management team and have an intelligent conversation around
how they run their business. The carry, pay, prestige, it's great, but what really keeps
me here and continually interested is this.
These are just a few of many reasons people decide to go into private equity. The
opportunity, work, and compensation are why this is considered by many the promised
land of finance careers (although don't let that fool you into thinking it's the best field for
you, that is a deeply personal matter that varies with who you are).
Pay
Hours
Work-life balance
Bored of grunt work
Touching on that last point, avoid bashing on your prior work experience. Don't talk bad
about excessive hours, too much travelling, or lack of work-life balance. Answering the
question like this indicates that you want to be in private equity for the wrong reasons.
Additionally, private equity ain't all sunshine and rainbows; they want to know you can
stick it out through thick and thin. Rule of thumb: don't ever complain at work or during
interviews.
Original Inquiry
When asked, "Why our Middle Market PE firm over a Bulge Bracket PE firm?", how do
you respond?
Especially coming from a bulge bracket where deals average about $1bn or more per
deal... has anyone had to answer this in a Middle Market PE interview?