Ping Numi

Need an opinion as to how you like the transaction world compared to the research world. Do you think you’ll stay there or go to an investment management firm? How do you value the name brand of a bank doing research vs. perhaps the lesser name but possibly the better experience of a smaller firm? Not all these may apply to you but curious of your opinion anyways Open to other as well…

hi accountant23, i enjoy the deal environment more than the research world. my whole rationale for going into equity research (rather than investment banking) in the first place was because i thought i was more interested in stocks than transactions, which was true during my time in college. but it was also because i didn’t really know what a deal was and i think out of my own ignorance as well as my desire to “keep things simple,” i just went with what i thought i would like. i ended up enjoying my experience in equity research, but over time i just realized that i was more fascinated in transactions than the daily volatility of the stock market. i think there are a few reasons why i have enjoyed private equity so far. (1) i felt that researching public equity was pretty superficial. even though sell-sider analysts are expected to be “experts” on the stocks they cover, there is a limitation on how much they really understand companies simply because there is so much information that is just not available in the public realm. (2) i discovered i was more project-oriented than everything else, and spending 2-3 months diligencing and executing a deal has turned out to be better for my temperament and work mentality than being involved in what i felt was a daily “frenzy” of the stock markets. (3) i think i’m pretty analytical and so i like that aspect of PE. there are many compliance and legal hurdles on the research side that detract from what i think is the “real job” (i.e. analyzing stocks), whereas in private equity, due diligence can be very detailed. it’s largely due to the fact that you have access to so much more information about a company, but it’s also as important that you really dig thoroughly into a company and think about every possible scenario that could go wrong, because the only thing worse about letting a good deal slip is to commit to a lousy company and end up with buyer’s remorse. and finally, (4) i had an interest in learning about how to run companies, and while it’s certainly true that we aren’t involved in the day-to-day aspects of managing companies, as a private equity investor, one still gets to have high-level exposure to supervising the way a business operates, and looking at the operational and strategic elements of companies in addition to pure financials. the reason is simple – even though we don’t get in the business of managing companies (we tend to buy companies with good management teams in place), we do own the companies, and when you look at investing from a control perspective, it’s a totally different mentality than what you’d have to be concerned with as a minority shareholder in a publicly traded company. it’s hard to say whether i would transition to a hedge fund in the future – i don’t know that the private equity lifestyle is one that i’d want to have for the long haul unless i could retire pretty early – but it’s a good training ground so far and i definitely know for the time being that i’m more interested in deals than stocks. i think the biggest issue i had with being on the public equity side is the lack of control – no matter how much you think you “know” a company, there’s still so much you don’t know and there are so many variables that influence the stock market, almost none of which you can control. it’s true that it’s much easier to get in and out of positions in stocks than it is with deals – PE firms are stuck with the companies they own for 3-5 years or longer – but the best private equity funds have a way to consistently deliver good annualized returns simply because they can affect the fate of the companies they own. being in control is more important than liquidity to me, even if it requires more discipline and commitment. as far as whether it’s better to start out at a big firm or a small firm on the research side, i guess it depends where you are in your career track (what do you do professionally, anyway?). however, knowing nothing else about you, i would suggest that you’re more than likely to be better off having a “brand name bank” on your resume. i know that smaller investment banks talk about how you might have a more intimate experience in terms of the stocks you cover and your day to day responsibilities, but being at a larger bank doesn’t necessarily preclude you from doing those things either. in reality, sell-side research is very team-dependent – you can think of most research teams as essentially being independent franchises, and your day-to-day life will depend much more on the team you work with than the roof your cubicle is situated under. importantly, when people know little about you and the work you do (as is the case with PE, since they hire mostly from banking and not often from research), prestige becomes all the more important. at the junior level, it’s generally a lot more competitive getting a job at a larger investment bank, and from the PE firm’s perspective, it’s easier to explain a hiring mistake if they picked someone out from GS/MS than from a small boutique that not many people know about (as a way of perspective, one of my friends who worked in research at banc of america securities – maybe not a BB but still a well-known bank by any stretch – told me that in several situations, he had to “explain” to private equity employers why he didn’t work at a bulge bracket). in addition to the perception of prestige, it’s also about minimizing liability – if you were an ex-BB guy and just couldn’t get it done on the buy-side, it’s much easier for HR to chalk you up as an outlier, whereas if you came from a smaller bank and didn’t perform on the job, whoever hired you would probably get hazed for making such a “risky” decision. it’s really a matter of picking the candidate who’s more likely to be a known entity, which is why i think you are better off aligning yourself with a larger sell-side firm to start your career. hope this helps!

p.s. one important factor i forgot to mention about my desire to move to the transaction side is because i felt i lost some of the passion i had for the stock markets. i’m not really sure how or why this happened – i think there were a variety of reasons – but i firmly believe that in order to be good at anything in life, you have to have a passion and commitment for whatever it is that you do. i made the most of my time on the sell-side but that was enough for me – i didn’t enjoy living and breathing stocks the way that some of my colleagues did, and also i am not that excited to discuss stocks in general. it’s probably easier for some other people to apply themselves to their jobs especially if they see it as a means to an end, but i often slack off when i get bored and when i realized i couldn’t continue to grind away at equity research, i knew it was time for a change.

hi numi, i work on the sell-side and had the opportunity to discuss with colleagues from corporate finance about their job. everything you said applies to them too, there is a very interesting side of the job that includes the due dilligence process and of course available information is at a different level and depth as compared to sell-side. they told me however there’s also a large part of the job linked to the project documentation, basically gathering all kind of papers required to be prepared for different bids. That is not a very fun part at all according to them. In fact it’s quite boring routine stuff. I might not be accurate here, i’m not working deals, but i intended to make a move in that direction. i would very much like to hear your oppinion on the “dark side” of the job. thanks.

When I worked in M&A, I dealt with a number of PE companies. Some of the due diligence questions we would receive were incredibly mundane. Associate-level guys would have to process/format it all. There is a dark side. From my time in that environment, I concluded that, on the whole, PE was better than IB probably in most part b/c there is actually money at stake. The worst job I came across was the poor folks in corporate law. Unless those guys work shifts (or come in very late), it seemed like they were in the office as long as I was and doing the most tedious work imaginable.

olfy – for starters, an example of the “dark side” is my still being awake at this hour doing work on drafting a deal memo. fortunately i plan to get into work around 10AM, so i’ll still get a modest amount of sleep tonight. dealing with the lawyers and accountants seems to get pretty tedious sometimes from what i’ve heard, but i haven’t really done any of that so i couldn’t tell you how exciting or dull that stuff is. but there is definitely some “documentation” stuff like you said, i.e. going through the data room and trying to figure out what information we have versus what information we need from the bankers. however, i consider that more as a necessary part of the due diligence process, as opposed to trying to make a subjective opinion about it concerning whether it’s fun or not… i’m sure there are other examples of the less appealing aspects of the job as there is with others, but i can’t think of too many right now because (1) i’ve only been at the job for a few months so everything is still new to me, (2) i’ve tried to keep a good attitude so far, and (3) i’m tired as hell right now. but i’ll check this out again in the morning and maybe i’ll have some more interesting thoughts at that time.

thanks numi and etienne, i appreciate your effort and info on this

so anyway, after getting some sleep last night i had a chance to think about this a bit more. now, i haven’t been in PE long enough to have a really strong opinion about certain things, but my sense is that there can be a lot of back and forth with lawyers, accountants, lenders, and basically everyone that’s involved in the deal process. getting a deal done is not an easy thing and requires a lot of effort from all parties involved. however, many of these discussions are carried out by the more senior personnel on the deal and the associate doesn’t handle as much of it, so i can’t exactly say that these things are difficult for me per se since i don’t do much of it. as far as data crunching goes, the things i notice is the tendency to analyze data just because it’s available – a lot of the data is definitely useful and tells you something about the company, but i can see how there’s also a temptation to spend more time looking at other bits of data and try to come up with observational trends that aren’t actually that meaningful or can’t actually be used to identify causation about a particular event. and then there’s the issue of drafting investment committee memo’s or LOI’s, and oftentimes there can be multiple back-and-forth iterations just to get the documents straight. so maybe those are some things that people would find to be less exciting about the job, but overall i see it as being a mandatory part of the process. in general, people in PE aren’t keen on wasting time or window-dressing things, so i tend not to be irritated by things as long as i see them as mandatory components of the job. that said, i am hard-pressed to identify things i didn’t like about a junior role in private equity, because overall i think the material is pretty interesting and there’s also a lot more variety in the work that i do, because i’m looking at companies in different industries and also am thinking about different types of deal situations and financing scenarios. plus, whenever you’re working on a deal, there’s a sense of propriety over it – not just because you actually end up owning the company if you buy it, but because you have to use your own creativity and business acumen to come up with an assessment about whether the company is a good investment. i recognize you’d do a lot of these same things when you’re analyzing stocks in sell-side research, but the things that frustrated me about research is that there’s a lot of reporting, like writing recaps of conference calls and earnings calls and whatnot. i know all banks talk about how they like to come up with proprietary insights and how the most important thing in research is what you do between the times that companies report earnings, but this is so much easier said than done. also, in research, you can spend tons of time putting together a note or model but it’s hard to tell how many people read it, as well as how much you’re actually getting paid for it – and if you don’t know how much money you’re bringing in, how do you know what you’re really worth? finally, there are so many legal and compliance hurdles that one needs to clear just to get a note or a model published, not to mention that there’s so much time being spent with finding the right words to publish a note. i guess the whole point of sell-side research is not to take such a hard stance unless you need to (though i see this as being a feeble way to protect against liabilities), but personally i like to say what i mean and sometimes you spend so much time in equity research wordsmithing your documents that it sometimes obfuscates the original intent of things. anyway, there are good points and bad points to every job out there, but hopefully this gives you some idea as to where things fall from my perspective

the biggest challenge w PE/VC is access to deals - at the associate level you won’t feel it, but if your carry income depends on good deals, you need to be in the flow. the top tier funds tend to see the best deals and generate the best returns, the dispersion in returns is really wide, and performance persistence from the best funds is much more visible compared to the basically random pubic side. its much more of a game of who you know (at the rain maker/partner level) than the hedge world, which is somewhat more darwinian and has lower entry barriers.

err…thats supposed to read ‘public side’ up above…

haha good reads though

Numi, Ever got my email? Thanks

>err…thats supposed to read ‘public side’ up above… Interesting how you chose to issue a correction instead of editing out the error directly in the post…

Numi, It sounds like the things you don’t like about sell side research are all not major issue on the buy side. Just curious why the jump to a completely different animal like PE rather than stay in research but on the buy side?

Here’s my take (having worked in PE for 2+ years and currently looking for a public buy-side opportunity, I will compare those two rather than sell-side research): As numi mentioned, the largest difference in the investment analysis is the data, both the quality of it and the access to it. However, I believe there are ways public investors can to some extent overcome this problem through hard work, creativity, experience, knowledge, etc. Also, because of the control premium issue, I feel like these two investor groups aren’t necessarily competing against one another. And, as previously mentioned, it is quite different to be a controlling investor, or short of that, at least being on the BOD and working directly w/ management. That isn’t to say that you can’t get that experience in the public buy-side, but it is much rarer. The most positive aspect of my PE experience centers on the opportunity to learn from experienced managers and investment professionals how they think about running, and actually do run, their businesses and creating value. It’s also very exciting to have internal discussions with your team on possible financing structures, scenarios and strategies for the business when deciding on what kind of bid, or any bid at all, you’re going to make. The most negative aspect to me is when you have more or less completed the investment decision making analysis and are now in transaction execution mode. You almost feel like you’re just trying to get the deal done at this point and all the work related to it, while not unrelated to the investment analysis, sometimes seems like check the box type of work. Also, as you go up the ladder it really is much more of a relationship driven business, not to the same extent as the bankers, but it’s still a big part of it. Finally, you can’t work on all that many deals once they’re in the execution stage and there is a very real possibility that you’ll spend a significant amount of time (3-6 months on average) on a deal(s) which for some reason or other won’t end up closing–this is very frustrating. Bottom line, PE is a great training ground, especially for the more junior PE roles, for general business management and strategy complemented with the investment analysis and transaction structuring. However, it’s difficult to see myself becoming a senior PE investment professional because of the relationship side of it and consequently I’m more interested in analyst/pm roles at HFs in the longer-term.

buddha - as far as why i wasn’t interested in a long/short equity fund, i think there were a couple reasons. first of all, as i mentioned earlier, i found that i wasn’t as interested in stocks as i once was, or at least compared to some of my colleagues. secondly, i’m more interested in control investing than minority investing. finally, i just wanted to broaden my experiences and try something new. even though i see myself having a career in finance, i also see myself wanting a role in senior management down the line. PE is more likely to hone those leadership skills since you’re basically parterning with the management teams of the companies you buy, and you sit on the board of directors and help supervise how the business is operated at least on a high level. those were pretty much the three big reasons why i decided to steer away from public equity investing and try something new.

good post by VOBA. i should say that only recently did i sign my first deal up under LOI so i haven’t gone through all the trials and tribulations of a deal gone bad. i can only imagine how frustrating it can be to get exclusivity on a deal with the intent to close, only to see it fall apart at a later time. even though i haven’t closed a deal yet, one thing that can be tiresome which i didn’t point out earlier is just the amount of time you spend diligencing a deal, only to get outbid or to discover one or two things about a company after extensive research that pretty much sabotage the opportunity (like legal issues, sellers or management misrepresenting something about their company, or just the business or end market not doing as well as they were originally portrayed). the reality is, you oftentimes can’t get to the crux of an investment without extensive research, and that’s a big part of our job…but still, it can be frustrating to know that you put so much time into a deal only to not have it work out. i guess that’s just the reality of things though and if PE were so easy, then everyone would be doing it. as for myself making the reverse transition from what VOBA is inspiring to do, it’s because i am interested in transactions at the moment (perhaps because i haven’t been doing PE long enough to get jaded by the time and energy it takes to get deals done), and also because i do see myself as a relationship-driven person (since, as he mentioned, relationships are a big driver of deals as you move up the ladder).

above two posts are interesting. one more general question, how long is the duration of doing the reserach and actaully closing a deal? I would almost be afraid that I would get frustrated and lose motivation or interest, where as in my current situation if I get frustrated with a name I just shelf it and move on.

“However, it’s difficult to see myself becoming a senior PE investment professional because of the relationship side of it” VOBA, What do you mean by this statement? It seems like no matter what career path one would chose in finance, building relationship, networking, etc., would be the main requirement for assuming more senior roles. Whether its IB, PE, ER, or any finance related role that people on this forum are interested in, isn’t building relationships or developing a book of business the primary prerequisite for moving up in the industry. If one wanted to become a senior banker or an executive at a PE firm, isn’t having relationships with potential clients and industry contacts gained through experience the main requirement? Even if someone’s goal was to become a PM on the buyside, wouldn’t he or she at least be somewhat responsible for bringing in new money rather than strictly managing portfolios? For those who are more introverted, I can see how managing the relationship side of things would be a challenge. This is how I am. But it just seems like this is a requirement for moving up in the industry.

you’d have zero credibility in an operating role if all you have is investing experience. yes, perhaps if you’re restructuring a business the temporary leadership role may be a fit, but for a long term senior executive, a pvt equity mgr is almost never a good fit. i’ve been on both sides - investing and operating. and i can tell you, the stuff you guys say is ‘not fun’ i.e. the relationships, processes, execution, is what matters on the operating side. any smart guy can tell you a ‘smart strategy’ - ideas and strategies are cheap. execution is the real challenge. and thats where analyst types totally get creamed by some dude who’s been in the business, knows what buttons to press. an operating environment is about motivating people to do things they don’t necessarily want to, or care to do. unless you’ve been a senior deal maker / rainmaker, and can show sales/relationship skills, PE experience doesn’t really prepare you well. usually there are only a handful of people in the company (corp dev, alliances, strategy, etc) who even need PE taught skills. sales or operations skills are so much more important. if you want to be a general manager, BU head, CEO - go suffer in the trenches for a few years - anything else is a short cut, and you will lack the experience/maturity to deal with org politics. as soon as your mentor leaves, you’ll be shunted out.