Working as long as I have in executive search for Private Equity and Investment Banking, I’m regularly asked by many people in my network, ‘when should I make the move onto the buy side’?
Often I’m guilty of a rudimentary answer of between, Analyst, 1 and Associate 1 or as a Director.
However last week I was at lunch with an individual making a sell to buy side move and I appreciated that the question should not be ‘when to move to the buy side’, but ‘why’?
He remarked that in his peer group the content of the conversation was based around the fund that the individuals were interviewing with, or moving to and relatively little conversation about making a move outside of that to the buy side.
However, the majority of those considering this option aren’t clear on why they want to move into an investment role, other than it seems the next logical step.
Unfortunately there is little discussion around the strategy of the fund they’re looking to join and the path this will ultimately lead them to. Perhaps bankers are feeling pressured into looking at investment roles to conform to their peers?
Why not Investment Banking?
Whilst it comes with relentless pressure and demanding hours, this is a career path that many individuals excel in. Investment Banking offers a rich world of diverse transactions and the ability to interact with some of the most esteemed businesses in their respective fields.
Your career typically moves at fast pace and you know (through the standard promotion structure Analyst 1, 2, 3, Associate 1,2,3 etc.) where you will be at any point in your career, providing you with a certain sense of stability and transparency.
You can develop an intricate knowledge of one particular sector, operate in a generalist capacity or move across products to stay current with market demands (ECM, M&A in bull markets and Restructuring in bear markets!).
Financially, IB is a known to be a rewarding industry. A number of banks have shifted base salaries to an unprecedented level with most boutiques pushing salaries even higher to attract then best talent in the market. Whilst bonuses have dropped in line with regulation, they still make up a significant portion of overall compensation.
Are you a Consultant?
This will provide a truly international career, working on complex projects across the world to assist global organisations improve their operations on a fundamental level.
Often this means sitting alongside some of the most senior individuals in the company advising on key strategic initiatives and improvements. The skill set of strategy consulting tends to be less financial and more commercial; it’s worth noting many of the biggest names in listed businesses have at some point been a strategy consultant.
Whilst not the bonus led culture of Investment Banking, the base salary is high and it gives you an unrivalled ‘business knowledge’. Many individuals that talk to us at Altus Partners want a move into Private Equity; they want to deal with portfolio businesses and many even see themselves as future senior management , for example CEO or CFO.
What about industry?
Recently I met with a leading tech venture capitalist who lamented that; ‘These days everybody wants to be an entrepreneur’ – and I can understand why.
Developing the ‘eureka’ idea into the next Facebook, Uber or Twitter and becoming an overnight million/billionaire has its attraction!
This is a route I have seen more frequently with the fall out of the last few years in the financial services sector, and it has appeared on a variety of levels.
Some make the move into Corporate Development, helping businesses achieve their growth ambitions through acquisitions and by overhauling historic strategy. This route can be highly lucrative, especially in a period of high growth or readying a company for an IPO. There is typically good deal flow as the company is less pressured by investment return or achieving a knock-down price, with a greater focus on the acquisition helping achieve a growth story in the longer term.
Alternatively some seek the start-up route, mostly from an Investment Banking, Accounting or consulting background. From these specific backgrounds, you are well placed to add the financial or commercial business intellect to a young venture.
Joining a business with high growth potential is certainly compelling and attractive to a number of professionals, and if or when it comes the payoff for all that hard work can to be huge.
If not, most people consider it a positive that you have tested yourself in one of the harshest of environments. If this business venture isn’t successful: getting back into the financial services industry (after a year or so) is certainly possible, and you have gained some strong skills along the way.
You want to be an investor?
If none of the above are for you then the next step is to move into an investment role. If this is the path you are looking to pursue, you will need a focused approach with clear, well prepared reasons for wanting this role.
The first question: liquid or illiquid?
Do you want to be a trader, deploying strategies on a daily basis, plotting trends in charts, or predicting the future macro or micro events? If yes, the answer is liquid; the typical Hedge Fund has struggled in the lack of market volatility of recent years but conditions are improving and it suits an individual who likes to be able to execute a plan and see results quickly.
The next question: what strategy? Event-driven, relative value, special situations, etc.
The other option is illiquid, where you prefer a heavier involvement in the companies you’re investing in – the most well trodden path is Private Equity.
If this is the route you are aiming for you must know your CV inside out:
Deals you’ve worked on
The numbers ( in specific detail)
The outcomes etc
Demonstrating a genuine interest in investing is heavily weighted in the decision process so research is often the key differentiator. Being commercially astute with acumen for what makes a good investment/business and a poor investment/business is important (feedback from Partners in Private Equity funds is that bankers are often guilty of being indoctrinated with selling an equity story – this habit stops them seeing the full picture).
Too often people haven’t thought this through and things quickly unravel in an interview despite an exceptional CV.
Furthermore – you need to know what type of fund you want to join, for instance, large, mid, small-cap/ VC, credit or equity, and most importantly why. This typically needs to be backed by example companies you are tracking in your chosen strategy and summary case studies on why you would choose to invest in these businesses over others.
Financially the buy side is less lucrative than the sell side below Vice President level, and therefore you will need to be prepared to take ‘one step back for two steps forward’ whilst also giving due consideration to the type of fund you are joining (track record, dry powder, succession planning at Partner level, future fundraising plans, etc.).
I see people accepting offers because it’s the ’holy grail’ of the buy side without noting the financial value in the move is realised in years 4/5+. Therefore you need to know that the fund has the right platform for you in the long term because it is not a move to make with only short term considerations.
Ed Chamberlain is the founder of Altus Partners and an active member of the Private Equity Search community. He has had over 14 years recruiting for a number of funds running various illiquid strategies
P.S. If you would like a confidential career discussion please contact Altus Partners on 0203 137 3250 or email@example.com