Ex-banker in PE. I actually love building models in excel. I love financial analysis.
However, have been told that I need to start developing other skillsets, which involve taking expert calls and doing other forms of market diligence. I intellectually understand why this work is important for a deal, but it is much more difficult.
Nothing is as clean as being in excel. I actually revel in the mechanical keyboard clicks as I build out tab after tab. Have always been a numbers / math guy.
What is your advice? Eventually, as you get more senior, you stop holding model. Yet it is the work stream I genuinely enjoy.
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Ah, the sweet sound of keyboard clicks as you build out financial models, I can almost hear it now! It's clear you have a passion for the numbers and the analytical side of things. But as you've noted, as you climb the ladder, your role will evolve and diversify.
Here's the thing, my friend. In the world of finance, and especially in PE, it's all about growth and adaptation. You've got the modeling down pat, and that's fantastic. But the industry is a multifaceted beast, and the more skills you can bring to the table, the better.
Now, I understand that these expert calls and market diligence tasks may seem tedious compared to the clean, mathematical beauty of Excel. But they're crucial for gaining a holistic understanding of the deals you're working on. They provide the context, the story behind the numbers. And who knows? You might find that with time, you start to appreciate these tasks for the insights they offer.
So, my advice? Embrace the change. Dive into these new tasks with the same enthusiasm you have for modeling. Remember, every new skill you acquire only makes you more valuable in this industry. And who knows, you might find a new aspect of the job you enjoy just as much as modeling.
Remember, the grass is always greener where you water it. So, start watering these new tasks and watch your career garden grow!
Sources: Is It Worth It? - Spending my youth, Losing "The Edge" Post-IB, https://www.wallstreetoasis.com/forum/investment-banking/modelling-has-to-be-the-biggest-misnomer-in-this-industry?customgpt=1, Advice From a Seasoned Equity Analyst
for once the bot gave a decent answer
good bot
Convinced that the WSO bot is actually just Patrick writing every response
yeah, that would be a good use of my time lol
holy shit I thought the bot was a real person, damn
If you are close with your lead MDs and the staffer, this is really an easy conversation to have, there goal is to build strong teams and you would be a good contrarian to me. I am the opposite and enjoy the other aspects over crunching the numbies all day every day and then watching that lil blue circle mock me as my excel says "not responding". If you have a colleague who you are friends with that enjoys it, ask them to lead, you follow, see how they handle it. You'll get better at it so you have the skill in your holster, but I want my starters hitting bombs ( you modeling) not doing something you can only hit a single at, or be unhappy doing
Thanks. Principal is sympathetic to my interests and has put me on mostly model staffings thus far but they really want to see me develop my other skillsets. Unfortunately it is coming from the top down
Gotcha, sounds like from MD/ SMD Partner type. That is good though, means they see a lot of potential in you.
I would find the best person on your team at it right now and follow the lead, ask their approach, with certain experts, calls etc.. I remember the first time I went to a board meeting / had to give advice to a distressed port co, I was sweating it, it now is a lot easier.
Is there a way to direct message you? I need modeling help
The truth of the matter is that the modeling, while having a sort of artistic elegance to a certain type of person, is really not that important. I realize that this is kind of heretical to say because PE is almost entirely populated by former bankers. But in reality, the qualitative areas that feed the model are what really matter, and as you get experience over time, you barely even need a model to be able to tell whether an opportunity has the right risk / reward skew to justify investing. Modeling's primary purposes, in my view, are 1) to pressure test assumptions and make sure there isn't some major driver that matters much more than you realized (which is important but can also be done intuitively over time), 2) to have something to give lenders, and 3) to CYA. In terms of career longevity, getting too married to modeling and not showing a willingness to transition to the higher level, qualitative aspects of the job will be extremely limiting.
If you find the expert calls and qualitative thinking mind numbing, you're going to hate this job as you progress, and I would recommend trying to learn proper programming and transition to a software engineer career if possible, because it sounds far more aligned with your interests.
Thanks, this makes sense. I was the kid in high school who loved physics and calculus. Modeling is fun but you are right.
Do you think FP&A / CFO route might be more attuned to my inherent quantitative inclinations?
I can understand commercial concepts well if given enough time, but I find the speed at which one is required to ramp up on commercial market topics in private equity to be a challenge. Also, I am cynical of the impact of market diligence work — since oftentimes from my perspective we are trying to get N=[30] calls to prove out what we already came in believing based on a few initial calls. I’d prefer to get to know an industry space well over time and not have to make basic pages on market growth rate and dynamics.
Maybe, although I tend to view FP&A is pretty repetitive and mostly an exercise in herding internal cats and updating a pre-existing model template. But I'm sure depending on the company it could be more interesting. I don't think that a CFO is likely spending their day modeling. But your best bet would be to talk to people actually in those roles and see what they say, since I've never actually done either one personally so only have an outside-in view.
HF bro. I was in your shoes and made the jump and it fits a lot of what you’re looking for. You may not love the near-term pod model but there’s not enough time to chase stuff forever and the model is actually key (a little debatable but your pm won’t let you put a trade on without some numbers behind it). Also basically no slides depending on the firm.
100% right.
I also loved modeling. There’s something so satisfying about starting with a blank excel and creating something analytical, flexible, and robust that can elegantly help you think through important questions.
The reality is, you don’t get paid much to model. If you want to be a professional model building you can go get a job at CapIQ or Bangalore making $35k a year or you can maybe find someone at a HF that just wants a career model monkey and they’ll pay you $300-500k a year as long as they still have a job.
The skill set is progressively and largely unrelated from the prior toolkit you had.
Analyst/Associate: analytics, modeling, attention to detail
VP: managing Jr’s, running workstreams autonomously, deal quarterbacking
Principal: people management, sourcing, executive presence, relationship building, diligence chops, sometimes deal quarterbacking
Jr Partner: internal relationship management, network, diligence, fundraising
Sr Partner: internal politics, marketing, fundraising
Honestly you're likely in the wrong profession, at least from a passion standpoint.
I always find it so funny how college kids, or even banking analysts think how important modeling is. Its not. I mean sure, yes, its a necessary evil, but it is not what drives decisions. Investing is a soft skill industry. I'd imagine PE even more so. Its thinking through issues, incentives, market dynamics, etc. Having a good sense of good vs bad businesses. Doing the deeper dives in the expert calls and other forms of diligence is what drives results, not modeling. For all intents and purposes modeling can be thought of as a cost center.
I think you either learn to embrace these these other elements and get good at them or you begin to think of alternative careers. Setting aside personal enjoyment, you likely won't even move up in the ranks with such a mindset. Alternatively, you should consider other career options outside of PE that are more focused on data crunching and being in excel a lot. Granted, odds are these won't be as lucrative as a career in PE but you won't have a career in PE without being great at the skills you don't like anyway.
Thanks boss. Sounds like I'm fucked for a long term career in PE. I wouldn't mind doing the type of thinking you described, but I abhor putting it in slides to show seniors at the firm, and doing more than what I believe to be the sufficient level of work needed to reach a conclusion.
I don't think anyone is doing super out of the box critical thinking (like The Big Short style) but rather going through the motions to "prove" what we already suspect to be true based on conventional wisdom -- and what may appear obvious to outsiders. Oftentimes, I see deal teams doing extensive analysis on what I believe to be a non-starter thesis point -- missing the forest for the trees.
Anyways - what do you think would be a good use of my inclinations? Corporate finance? Or am I going to end up jobless in 2 years and on the streets.
Hmm, excessive dilignece in PE that likely adds little to no value, seems accurate.
Maybe you'd be better off served in a public markets role - equites or credit, HF or long only.
Very little in the way of bs work product creation. There are pro/cons to both sides, but you seem to maybe align more with public markets.
Would challenge you there. If you love modeling so much, why are you disinterested in making sure that what you’re putting into the actual model is thoughtful and accurate? CIMs and mgmt meetings don’t provide real world info. It’s all marketing BS. Consultants give you what you need to justify doing a deal while pepper just the right amount of not super damning negative learnings to maintain credibility but not kill the thesis/deal.
The vast majority of what you learning in this business comes from talking to people, expert networks, portco mgmt teams, industry contacts, etc.
You might like a MM HF. Those analysts keep very tight models for 50+ companies, updating them quarterly for earnings and other data points. It’s not a great career path IMO, high stress / low stability, but there is high upside and greater autonomy.
You cannot succeed in pe if you cannot perform airtight commercial due diligence and succinctly articulate those findings to Ic, coinvestors, bosses etc. It's literally the first skill set after model you need to begin to develop to make it to the next level
If you want to stay in PE, it is the non-modeling part of the job that becomes more and more important.
Yes. You need to do the modeling. The numbers need to work. But if you want to move up the chain, it is figuring out what numbers go into the model that matters.
I will give you a very concrete example of this. I currently work at Dominion Energy. Basically from the financial crisis to the start of our business review, we have been making decisions basically to meet this quarter’s EPS, this year’s guidance. But the consequences of this is that we developed a massive over-earning issue. One we didn’t have to address until Virginia decided to force us to have to address it. Because of this, now we had to sell off our LDCs and Cove Point. It is why we had to get Virginia to change laws.
Now why do I provide this example? Since the financial crisis we were making good economic decisions. We did things that showed up as a good decision in a spreadsheet. But we knew the problem we were creating. We knew there was a non-financial hole we were developing. We knew that the financials were basically borrowing from the future and that, simply from the financials, you would not be able to see it.
Your model would have broke if you didn’t do the due diligence work and you wouldn’t have been able to know. It may be eye-gouging work. You may not like it. But if you do enough deals, the due diligence work will be something that makes or breaks deals you work on.
Enron was putting in their annual reports enough information for people to know that there was a problem at the company at least 5 years before it imploded. If you looked you could have seen it. Few did. It is why most people got broke off Enron stock while just a handful of people got rich
I am very curious - what sort of decisions were you guys making that enabled you to pull forward earnings and over-earn vs. regulatory allowed ROE?
There are a few things that contributed to this but I am not quite sure how granular I am allowed to get other than saying that one of the biggest contributors was the rate freeze in Virginia
Carrying with this example, I work in the industry on the other end and in a MM HF. People like to give MMHF a bad rep on here due to the constant stress to perform and perform short-term yet I do not see many PE folks on here saying how "life is so unstressful and WLB is great".
In reality a strong team at most MMHF would be looking at the decisions of Dom Energy in a 5 year vacuum and hoping it will move forward (some catalyst), as they move forward the spreadsheet updates would be welcome news. So almost the exact opposite of what the poster is saying was a glaring problem, is more confidence for us to take a larger and larger position. Our main goal is to "extract" as much rent from the market when we can, but a lot of the times to do that best is to understand longer term themes but more so on modeling aspect.
So my guess; while Dom Energy was setup very well for 10 years with the Coal theme in APAC, and data growth at home. The execution timeline changed due to outside forces.
OP, I think you should consider the MMHF route for sure, all the modeling/number-crunching is there. But make sure you have a team who actually enjoys understanding businesses still and factors who go into the model. Maybe ask how they view an "expert call" and the value it adds/confidence sort of thing.
PE is more about checking under every rock to see if there’s a crab or a snake - diligence is the most important part of the process
Here's the most succinct way that I explain the problem:
If all you do is build models, you are not a member of the PE team. You are a piece of sofware with an annual subscription fee.
the most accurate description
Just listen to two podcasts on the way to work and have chat gpt give u a rundown on the industry and it's the easiest money you'll make.
I wonder if it’s just a matter of preferring a lighter deliverable? In my case, I know it is.
In other words if I’m doing work for someone else, I like excel better than anything that requires writing. Nothing worse than having to cover someone else’s concerns & summarize everything for them.
But if I was doing it for myself (say I was a billionaire doing my own deals with no LPs) I think I would enjoy the expert calls more than the modeling. Because I’d only have to write down what I care about. No memo to write.
Bingo
My friend, seems like you should be going for a hedge fund job. PE isn’t about excel.
agree. or any other public markets investing where there's more easily quantifiable inputs to your underwrite / thesis than in private markets. doesn't have to be a hedge fund. you could go work on an industry team at a large asset manager like fidelity, blackrock, vanguard. or if you really want to get out of the weeds on specific company underwriting, but like the modeling aspect, maybe look for opportunities to work in asset management or allocation, where you are analyzing trends to help decision making into different asset classes, managers, or funds.
pe is a human capital business. if you don't like spending time on the phone, learning from experts, talking to competitors, and coaching/advising management, you are not long for this career.
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