GUEST COMMENT: There are a lot of people in private equity funds who have huge egos but have done no deals. It cannot last
I work in private equity and am frankly amazed at the fact that some of my peers are able to fit their egos in the building. This is an industry in the midst of existential changes of an entirely negative kind.
I am not without a fairly massive ego myself. Along with most of my colleagues, I left banking with big ambitions to make a lot of money on the buyside. I aspired to a private equity fund or a hedge fund, or nothing. By the time I was 30 I would have my own island somewhere hot and prestigious.
Needless to say it hasn’t been quite that simple. Much as we like to suggest we were foresightful retrospectively when it came to the credit crisis, we weren’t. If we were, wouldn’t be working in private equity.
The sad reality is that private equity is now an industry full of excessively ambitious and ego-centric people who missed the point, presumed everything was going to continue as it always had done and are proving very slow to reach the realisation that it’s changed.
Private equity was always the pinnacle of every banker’s exit ambition. It was an industry seen to be full of high-achieving ex-bankers earning vast sums of money over long time horizons. When things went wrong, the blip was assumed to be a trough, the trough was assumed to be a swimming pool. Now we seem to be stuck on an arid ex-ocean floor, with no chance of returning to what was previously ground level.
The fact is, transactions have dried up. No transactions mean now future. Dealflow is key to progression internally or externally (moving to another fund, or in the most ambitious of cases, starting up one’s own PE fund).
Many funds are exhausted wrecks. They over-spent and assumed that cheap financing for deals would last forever. If you take the boost that leverage provides of the equation returns look very unimpressive for a lot of second or third quartile funds.
How much pain can the private equity ego take? No one will starve. But nor will they be buying a second or third home or a flashy car. Nor will their careers progress.
In the circumstances, it may be time for some hard decisions about where to go next. A more modest industry perhaps? - A stock-picking mutual fund? It may well be too late to make the change if the unique PE skillset has become too deeply ingrained. And then what?
The author works in Private Equity and started work in investment banking. He is trying to keep himself down.