Working for a private equity firm?

The size of the firm will be a factor in how easily it is to move into the business side. A larger firm will be more difficult as they are seeking a dedicated role. The size of the firm will also be a factor in what you do. A smaller firm will allow you to be involved in all the details - a larger firm you will be handling just some of the details. Since you mentioned you would be a junior lawyer I would guess you are talking about a large firm.

I was a lawyer at a larger law firm and moved into venture capital. My VC firm is also a player in the PE field. However I made the move by starting a company taking it IPO and joining the firm that I used for funding. I worked with VC firms at the law firm so I sought the best for my funding. It is easier to have some business experience or i banker experience to get into the business side of PE. Right now the hottest job for new MBAs is PE. My transition was easier because I had the credibility of running a successful startup and having some cash in the bank. I opted for a dollar salary for a larger cut of the carry.

Legal work falls under my partner umbrella at my firm. I retain legal firms and manage legals costs. I hired attorneys to become part of our core staff to control costs. I hire senior lawyers that don't want to cross over just easier for me to deal with. There will be a natural resistance to allowing you into the money making side. I also outsource legal work to India - we use the same pool that GE, IBM, and others use at a fraction of the cost. (This is not a discussion on outsourcing so moving on quickly) The partners in our firm always look to cut legal costs if we have a slowdown. I am senior enough to shelter my hires as we need them when we have an upturn. Just understand that the business side view lawyers as necessary but not necessarily equal.

It might be easier for you to work at a large PE firm and then go to the business side of a smaller firm. Large firms will tend to see you in one role.

Compensation will be better then what you are currently receiving but you won't get a cut of the carry. The carry is where the money is at in a firm. The hours should be about the same but they will be in cycles. You will work a lot and then slow down. Billable hours will go away instead it will be getting the deal done. PE firms are making massive amounts of money so compensation is generous.

The PE field is white hot now with new firms getting funded daily and old firms raising larger new funds. At some point the field will slow and the returns to investors will be less. The result will be cuts or closing of firms. Reality is that with a 2% management fee and 20% of profits a firm has to have large return to earn that back. Not all firms can do this. I am old enough not to guess where we are in the cycle.

Good luck in the process. The PE field is an interesting business.

 

I don't know much (okay, anything) about the ins and outs of PE firms, but I would say that if this is something you would consider doing, it's worth pursuing. Get more information and set up an interview (assuming they want to interview you). There's never any harm in exploring other opportunities, even if you ultimately decide this isn't the right move for you.

 

Does Floyd know?

 

Thanks for the responses. After having learned more about the firm, it turns out to be a hedge fund with a PE bent, trying to do more of that side of the business. In any case, it's a large and stable organization (read: it's no Amaranth) and seems to mesh well with my personality, so I will do an interview with them see where that takes me.
Wow, does anybody remember when hedge funds were actually named appropriately, and weren't boutique, semiregulated IBs?

 

Wow, does anybody remember when hedge funds were actually named appropriately, and weren't boutique, semiregulated IBs?

Um, yes.

 

After having learned more about the firm, it turns out to be a hedge fund with a PE bent, trying to do more of that side of the business. In any case, it's a large and stable organization (read: it's no Amaranth)

While Amaranth was a spectacular example of poor judgment (only because the trade didn't work), it was a well regarded shop with talented personnel. Many of whom are already working at other fine shops. LTCM was another stable organization with talented folks (who now collectively run more money today than when they were at LTCM). In fact, Julian Robertson's invested with ex-LTCM managers.

The point is, hedge funds (particularly non-long/short equity strategies) operate in many, and sometimes esoteric, areas of the capital markets employing direct and indirect leverage. The general premise is that historical correlations and market liquidity mean something. Unfortunately, that's not always the case when everyone wants out and correlations go to 1 and liquidity dries up. The hedges don't work and valuations get anhilated.

Amaranth had an outsized natgas bet that went wrong. George Soros made a billion dollars essentially overnight with an outsized bet against the Pound Sterling. He's a hedge-hero because he was right. He could very easily have been wrong and gone poof. Amaranth could very easily have been correct. LTCM might very well still be in business had Russia not defaulted on their debt.

I submit that hedge funds running/investing in private equity strategies face abnormal liquidity risks. A stretch of underperformance and the hot money wants out. Poof! The prime broker calls their lines and steals their book--even if they were right in the long run as LTCM was and Amaranth appears to be.