by Brian DeChesare Comments (4)

Private Equity Exit Opportunities: How to Check Out of Hotel California

Private Equity Exit Opportunities

Your first thoughts reading this article might be, “Wait a minute, why are ‘private equity exit opportunities’ a topic? Who would ever leave this industry? And what could be better?”

Good questions.

But despite the hype, people do leave private equity all the time, whether it’s voluntary or forced.

So, as with every other career, it’s important to understand your exit options.

Note that this article refers to exits after full-time roles at the Associate level or beyond.

If you’re doing a PE internship or a PE Analyst program, you already know the most likely path: work at a bank and then move back into PE.

Why Leave Private Equity?

The short, simple answer is that you might work in the field for a few years and find out it’s not for you.

For example, maybe you have to do a lot of “sourcing” (cold calling), which you dislike.

Or you find it boring to look at deals constantly but reject 99% of them.

Or you don’t like the required documents, memos, and process work.

Or you like doing deals but not monitoring companies for years and solving their problems.

Yes, the work is more interesting than banking in ~99% of cases, but if you do not like analyzing companies and working with numbers, you will still not like it.

And while the salary + bonus + carried interest levels are high, you probably don’t want to stay in a job you dislike for 10+ years just to make money.

But even if you like the work, you might also be forced out, either formally or informally.

For example, you might get a bad performance review, and the firm might state that you will not be able to advance because you lack qualities X and Y (e.g., communication skills).

Or they might drop hints that you won’t be able to advance and suggest going to business school or joining a portfolio company.

Most people who join at the Associate level do not advance to the top, so an exit is more likely than not.

Private Equity Exit Opportunity #1 (Sort Of): Do an MBA and Return to Private Equity

If you leave for an MBA program voluntarily, it’s not a real “exit opportunity” because you’re taking a break, networking, and returning to the same industry.

This is more of an exit if you get forced out and you want to use the MBA to switch industries or firms (e.g., a smaller firm or one with a different industry/deal focus).

If you already have PE experience, you don’t “need” an MBA to switch to another firm, but sometimes it helps tell your story more effectively.

For example, you may not have to spend as much time explaining why you quit your first firm; you can just say that you wanted to go to business school for reasons A, B, and C, and you were open to different options afterward.

The main downside is that this is a very expensive exit if you’re paying for the degree, and the benefits are questionable if you stay in the same industry.

An MBA “exit” usually makes sense only if you use the degree to move into a different career.

Private Equity Exit Opportunity #2: Join a Hedge Fund

The logic here is simple: you like investing, but you don’t like all the process work, documents, coordination, and monitoring that comes with PE.

You want to spend your time finding mispriced companies and assets, betting on them, and seeing your results in real time rather than waiting 5-7 years to sell.

You still get paid well, but you use a different skill set.

As discussed in the hedge funds vs. private equity article, this path is surprisingly common because many people fall into this category.

But there are some downsides:

  1. You’re not the best fit for all fund types – For example, you’d be a good candidate for long/short equity, merger arbitrage, and activist hedge funds, and possibly also credit and distressed funds. But you wouldn’t be competitive for global macro or trading-oriented strategies like convertible arbitrage.
  2. You become more specialized – Working at a hedge fund makes you “sharper but narrower.” You get good at making money from mispriced assets, but you lose some of the soft skills required in PE, which means pursuing the other exit options on this list can be difficult.
  3. Compensation is highly variable – Yes, the ceiling at the top levels is similar, but there’s far more variability at hedge funds. Even if you perform well as an individual, you might earn less if your fund has a bad year.

Finally, joining a hedge fund won’t necessarily fix what you didn’t like about private equity.

For example, if you disliked working solo, you might work by yourself even more at a hedge fund, depending on the environment and fund type.

Private Equity Exit Opportunity #3: Join a Growth Equity or Venture Capital Firm

These are good options if you want to go in more of a qualitative direction while still working on deals.

For example, instead of poring through financial statements and contracts in a data room, you want to do deals based on market research and the qualities of the company founders.

You’ll also focus on technology, healthcare, and other growth industries.

I can’t say whether this is more or less “interesting,” as it depends on your personality and skill set.

The main downsides include:

  1. Lower compensation – especially in VC – but better and less stressful hours.
  2. Advancement is tricky (more so in venture capital careers), and you usually don’t want to stay in VC long-term until you are more senior.
  3.  Certain exits become more difficult because you do relatively little quantitative work in VC, so it skews you more toward operational roles.

Growth equity sits halfway between PE and VC and is a good compromise if you’re unsure which one is best for you or which trade-offs you can accept.

Private Equity Exit Opportunity #4: Move Into Credit, Such As a Mezzanine or Direct Lending Fund

These options are good if you want to work on many deals but go into less depth on each one.

For example, you might review a memo, build a quick model, analyze a few different loan structures, and make a quick yes/no decision.

There’s far less “process” work required than in PE, but credit investing is still more structured than most hedge fund roles since most opportunities will come to you.

Coming from PE, you’ll be a good candidate for these roles because a high percentage of mezzanine and direct loans backs leveraged buyouts.

The main downsides are:

  1. Pay also tends to be discounted – This is truer on the direct lending side, but compensation is lower than in PE because the returns expectations are lower, and funds are often smaller.
  2. You become more specialized – Yes, you avoid some of the “boring” work in PE, such as digging through data rooms and helping companies optimize their operations, but it also gets harder to move into opportunities at normal companies or to recruit for more qualitative fields, like VC.

Private Equity Exit Opportunity #5: Join a Family Office or Fund of Funds

These depend completely on how much direct investing you do.

Traditionally, family offices approached PE by investing in entire funds, but that has changed over time, and many now have direct investment arms.

Funds of funds vary more, and some participate in co-investments more than others (i.e., analyze a single deal a PE firm is doing and contribute extra capital for that specific deal).

The biggest benefits are that you’ll get a lot of exposure to senior people in private equity, and you get paid quite well for the reduced hours and stress.

And if you’re more interested in the qualitative/market/networking side, funds of funds can be a great opportunity.

The main downsides are:

  1. Reduced exit opportunities – Even if you work on co-investments, you’ll still have less direct investing experience than PE Associates. So, the most likely exits include related funds such as endowments, pensions, and sovereign wealth funds.
  2. “Mixed” industry outlook – Opinions about this one vary, but direct PE firms have grown their capital faster than funds of funds. On the other hand, as the macro environment shifts, funds of funds might also hold up better than direct firms.

Private Equity Exit Opportunity #6: Join a Portfolio Company in a Corporate Development or Strategy Role

These options represent a total change of pace.

You still work on deals in corporate development, but they’re internal to your company, and it’s sort of like “PE lite” due to the reduced compensation, lower hours/stress, and cozier environment.

Also, you arguably get more varied work since CD teams also work on joint ventures, partnerships, and even the integrations of acquired companies.

There is still some “process work” because you need to sell deals internally and conduct due diligence, but it may not be with the same rigor seen at many PE firms.

Corporate strategy is very different from PE and CD because you do not work on deals; you do market research, create long-term plans, and make execution recommendations (e.g., launch Product X in Geography Y).

It’s like being an internal management consultant, and it requires a similar skill set.

This role is best if you want to become even more qualitative and accept much lower pay.

The exit opportunities are also more limited; you could move around at your company, go into consulting, or maybe return to PE, but you would be less competitive for most deal-based roles afterward.

Private Equity Exit Opportunity #7: Start a Company

Yes, some PE professionals do leave to start their own companies.

But it’s not super-common because few people want to quit a job that pays $300K – $500K+ to start a business from scratch.

On a risk-adjusted basis, it’s a worse financial decision than staying in PE, even if you leave before reaching the top of the ladder.

This one is most viable if you already know an industry well and have a built-in advantage, such as a valuable asset or a technical co-founder who needs help with finance, fundraising, and sales.

Besides the huge variability in outcomes, the biggest problem here is that the PE skill set doesn’t necessarily lend itself to starting a company.

Yes, you learn about company operations, and sometimes you even change or improve companies, but you’re typically working with larger, established businesses.

And starting a new company is completely different from optimizing an existing one.

The best background for starting a company is sales, but you don’t get much exposure to traditional sales in most junior-level PE roles.

Private Equity Exit Opportunity #8: Go Back to Investment Banking or Consulting

I can already see your eyes rolling, but people definitely do this.

The reasons vary, but it’s usually a combination of wanting to earn a lot + having a more structured path + tolerating grunt work for long periods.

Also, some people are better at banking or consulting than investing: in one, you’re advising clients, and in the other, you’re using a much more critical eye and putting your own money on the line.

If that’s you, it’s better to be a great banker than a mediocre or bad PE professional.

The downsides are the more boring work (before the senior levels) and the lower compensation ceiling.

Wait, How Are These Different from Investment Banking Exit Opportunities?

You might now be thinking, “Wait a minute. It sounds like most of these are also investment banking exit opportunities. So, what’s the difference?”

You’re correct: they’re not that different, which is one of the big advantages of PE.

The main differences are:

  1. Coming from private equity, you have easier access to a few of these, such as joining a portfolio company or a mezzanine fund.
  2. Exits into other groups at banks are more difficult. For example, you could go from IB to sales & trading or equity research, but it would be more difficult to do either one if you’re currently in private equity.
  3. These exits are less “prestige-driven” because you don’t need to be at a mega-fund to have a good chance of winning these roles.

So, the exit opportunities for investment banking vs. private equity are similar, but IB still gives you broader options – PE gives you an advantage for some specific options.

Which Private Equity Exit Opportunity is the Best?

This depends on why you left, your long-term goals, and your desired compensation and lifestyle.

For example, if you’re tired of deal processes, documents, and data rooms, but you still like analyzing companies and still want high compensation, something like a single manager long/short equity hedge fund might be best.

On the other hand, if you never want to look at a company’s financial statements again, maybe you should join a startup or tech company in a sales, strategy, or business development role.

And if you like working on many deals and making quick decisions without extended due diligence, think about a credit role.

Corporate development might be best if you like deal processes and extended projects but want more of a life and are willing to accept lower pay.

Pay always factors into this decision because most of these exits have lower ceilings and average compensation than PE.

So, you need to review the figures and decide what you’re willing to accept.

Private equity gives you plenty of other career options, so the problem isn’t that you can “never check out.”

The problem is that the pay is so high that you may never want to leave – unless something forces you to.

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street. In his spare time, he enjoys memorizing obscure Excel functions, editing resumes, obsessing over TV shows, traveling like a drug dealer, and defeating Sauron.

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  1. What exit opportunities have the most social work environments? As opposed to everyone working more independently as in PE/HF

    1. For more of a social/team environment, “corporate” anything is your best bet. It’s usually the best part of working in a normal company in corp fin, corp dev, corp strategy, etc.

  2. Great article as always. Does Mega fund REPE forces people out? Or can I still in the senior asso to VP level for a very long time if I lack the skills to become principal/MD? Thanks

    1. Thanks. Most of these firms are not going to let you stick around forever at the same level, so you are not going to stay a VP for 5-10 years if there’s no chance of moving up. But the exact timing varies from fund to fund, and they’re not always going to say, “Please leave” – sometimes it is just implied. In general, as you approach the ~10-year mark (starting as an Associate), you should have a pretty good idea of whether or not you can advance. In some cases, even if you have the skills, it may not be possible just because none of the Partners want to leave and they’re not raising a new fund that’s big enough to justify more hiring.

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