REPE Questions

[BFP]

Hi LevBreakdowns Team –

I am currently a 1st year MBA student considering a career in the REPE industry. I read your free guide (super helpful by the way) and had a few follow up questions. All questions pertain primarily to the acquisitions (front office) roles at these shops.

1. What do you consider a megafund in the REPE space? Anything on the PERE 100?
2. How do hours compare to a career like investment banking at various stages in your career?
3. In the same spirit, how does compensation compare to careers like investment banking as a Post-MBA Associate, VP, SVP, and eventually principal?
4. After working at a smaller PERE100 firm, is it possible to lateral to larger funds (i.e., Oaktree, Carlyle, or Blackstone) after you have gotten more experience?

Thank you!

 

[Lev]

Howdy BFP, thanks for stopping by our forums. I appreciate the chance to connect directly with aspiring REPE investors such as yourself. It always feels great to speak directly to you vs. the typical indirect communication via blog posts, newsletters, courses and such. And glad to hear you found the free real estate private equity career path helpful! In case others reading don’t know, you get a free guide when you register a free basic account with us. And just a quick disclaimer that my responses below pertain to front office investing (acquisitions) roles, as you already mentioned.

Q1: What do you consider a megafund in the REPE space? Anything on the PERE 100?

Colloquially, we might refer to a single firm as a megafund, such as Blackstone, Carlyle, or TPG. But, I would specifically consider a megafund to be any singular fund with at least $1B of equity commitments. So any company managing at least one megafund ($1B equity commitments) could be referred to as a megafund.

A few more details:

1. Strategy: the particular strategy may vary. For instance, Blackstone’s core fund BREIT is just as much a megafund as Starwood’s opportunistic SOF X

1. Equity commitments, not AUM: I’m not talking about aggregate assets under management (AUM), I mean a single fund’s equity commitment determines status as a megafund. For example, if a core-plus fund has $1B AUM, then its equity commitment is at most $500M (assuming a standard 50% LTV). Though the equity commitment is probably even less since the AUM trends upwords as the assets are written up (though technically they could be written down if the fund is tanking).
2. One fund is $1B, not several together: I’m sure people try to get cute with the definition, say a single GP manages four $300M funds, they may consider themselves a megafund. But none of the individual funds is a megafund – they’re just in control of a megafund amount of capital split between four separate funds.

Q2: How do hours compare to a career like investment banking at various stages in your career?

Out the gate I’m going to say a career in REPE has a much better, though still difficult, lifestyle when compared to IB.

First, you aren’t client service. Sure, you put money to work for investors and you’re ultimately responsible to answer their questions. But fundraising and investor dialogue is often coordinated by an entirely separate investor relations (IR) team. So, the only element of client service is often not part of your daily routine. And that’s a beautiful thing, because clients require lots of time, effort, and attention – and weekends are a luxury that goes away when you need to be responsive to a client. This is true in IB and REPE.

Second, REPE investors control most processes they’re in. So you set the timeline and you drive everyone forward. That said, lifestyles ebb and flow with dealflow. Like bankers, investors are expected to commit their entire lives to their jobs. It’s just that REPE jobs naturally have downtime between deals, whereas bankers fill their downtime with late-night pitch deck grinds that never end. Bankers never want to appear idle, so they’ll keep their juniors grinding constantly. And if you make it to a senior position, you’ll constantly be grinding your juniors, reviewing the materials, and picking up the phone to chat with clients.

In concrete terms, I’d say junior REPE investors work ~65 hours per week versus junior bankers work ~75 hours per week, with the monthly or bi-monthly +10/20 hours. It hardly ever sinks below those counts, though.

Q3: In the same spirit, how does compensation compare to careers like investment banking as a Post-MBA Associate, VP, SVP, and eventually principal?

You can make a lot of money in both fields. If we’re speaking about uncapped wealth generation into the billions, obviously investor is the best choice. But the distributions of both career paths’ compensations are likely similar enough, both ending in the millions of dollars per year if you’re successful. Thus, this will be more of a discussion on compensation structure at the senior level rather than total compensation dollars, because they’re pretty even at the junior level.

So, the quick distinction:

1. REPE compensation is tied to fund performance. You can make inordinate sums of money if you get carry in the right fund.
2. Banking compensation is tied to your skill as a salesperson.

Let’s unpack this, first with REPE fund compensation. REPE compensation has two elements:

1. First, the quantity of awards you receive will be directly linked to your perceived skill as an investor.
   1. Skill is demonstrated in myriad ways, the most obvious being a history as a smart investor with high returns. Other things that affect your perceived skill are how smart people think you are, your political clout, and your ability to make headaches disappear.
   2. The quantity you receive will come in various forms: base salary, annual cash bonus, stock options (if you’re at a public megafund), and carry.
2. Second, the performance of the funds in which you receive carry and equity-like instruments will play a major role in your compensation. It’s hard to guess which funds are going to go gangbusters until all is said and done. But if you get carry in the right funds, you will walk away very happy.

Back to banking. At the start, banking is a predominantly quantitative role as a junior analyst and associate. But as you climb the ladder, your job becomes a sales function with a quantitative flavor. Investment bankers are compensated when they sell. The products a banker sells are the firm’s expensive services, either as an M&A advisor, as an equity or debt capital markets syndicator, or as any other of the myriad roles a bank fulfills for its clients.

Hopefully this helps. Juniors in both careers can make similar amounts, and the pay equally tapers off as you move away from the megafunds/BBs into the regionals/mid-markets, etc.

Q4: After working at a smaller PERE100 firm, is it possible to lateral to larger funds (i.e., Oaktree, Carlyle, or Blackstone) after you have gotten more experience?

Yes, assuming you mean working as an investor at a smaller PERE100 firm. REPE funds aren’t so snooty about background.

Prep Materials

By the way, if you decide to pursue a real estate private equity career path, you should check out the courses and interview guide we’ve put together. Interviewing for a career in REPE is all about sounding like you’ve already got the proper experience. We help you think like an insider so you can speak like an insider when you’re networking and interviewing.

Hope this helped. And happy to answer any follow-up.

[BFP]

Thank you for the thoughtful and insightful response. This is SUPER helpful for me!

 

I am currently networking with an industry contact and will leverage your guide if I am offered the option to interview.

 

Best,

BFP

[Author]

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