The news is out this week that J.P. Morgan has jumped ahead of Goldman Sachs to grab the number one spot as advisor to private equity firms doing major deals.
Private equity firms have long been one of Wall Street’s most lucrative clients for advisory and financing work. Banks racked up 19% of their total revenues in the first nine months of 2011 from PE firms, according to data from Dealogic reported by the Wall Street Journal.
So it prompts the question: would working for one of these big IB banks on their advisory teams be a good launching pad for a transition to a private equity job? The answer appears to be both yes and no.
It’s a yes in terms of the skills you learn and master in investment banking. The financial modeling, presentation, client service skills will serve you well, along with building an invaluable network of contacts among the private equity firms you may have a chance to work with.
But others point out the grass is not always greener in the private equity pasture. Many younger investment bankers cast their eye on private equity thinking they would have more of a work-life balance. Not so, says Mergers and Inquisitions. You will be working 12 to 18 hour days for another 2-3 years as you move up the ladder in the PE firm. Even if you go to a smaller firm, such as Summit Partners or TA Associates, you will still be working significantly longer hours than a normal job. And if a deal heats up, you’re likely to be working nights, weekends and sleeping in your office for a few nights.
The pay, however, does tend to be higher in private equity, especially at the larger firms. At the bigger firms, it can be as high as $500,000 per year for entry-level associates. And this escalates quite nicely as you move into the Managing Director/Partner level. So PE would be a smart choice if you are looking to dramatically increase your income.
As for the work itself, the folks at Mergers and Inquisitions warn that there will still be stultifying grunt work, such as tweaking presentations endless times and doing financial models over and over. However, in private equity you will also have another onerous task, which is unique to PE. And that’s “sourcing” – a euphemism for cold-calling, to bring in leads for deals. Some firms reportedly make their associates cold-call companies all day long. And if you’re fortunate enough to uncover a deal, the firm’s partner still owns it and makes the lion’s share of money from it. If you’re okay with cold-calling, you might even mention that on your resume or in the interview for a private equity job. Otherwise, it’s apparently one of the big reasons people decide not to pursue an entry-level private equity job in the first place.
What about you? Are you, or have you, contemplated a move to the “buy side”? If so, what are your thoughts? Add comments below.
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