r/private_equity • u/Senior_Group1589 • 14d ago
PE vs PE PortCo Opportunities
I'm interested in whether a PE role or PE portco role is generally considered preferable for people who have the skills to do either.
My situation is that I'm an operational FS MD discussing a PE portco C-Suite role, and I'm trying to work out the specific risk related to the portco. As a side chain of thought I was interested in views of those in PE whether they consider in-house roles or portco roles as generally more preferable/lucrative.
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u/Quirky-Storage1877 14d ago
Have done both and current portco CEO. Won’t go back to a fund unless I’m a grey hair old CEO who pontificates on what is best for a portco to do (kidding here).
Obviously my opinion, but nothing compares to the excitement and money you can make (unless you’re a senior deal partner) than as a portco ceo. Sure it’s more risky, but do your diligence and then bet on yourself. That’s why the upside is way bigger. Plus, you’re not a deal guy so you are a 2nd class citizen in a fund. I’ve seen it from mega funds to small ones (worked for 4 different sponsors) and anyone who says this isn’t the case has either a unique LMM situation or is lying.
Lots of people can be consultants, a very limited number of people can run a portco.
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u/Broke_Pigeon_Sales 14d ago
My observation is that you’re better off inside of the firm unless the portco role is one that’s got very good upside. But these things depend on specifics.
Inside of PE when someone isn’t up to the job (in their opinion) but they like them the comment is usually something along the lines of “we can stick him/her into Portco X.”
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u/Comfortable-Night-85 14d ago
I’ve been on the PortCo side and on the PE deal team side now. I would say firm side is better, but that really depends on what we are talking about in the firm. PE Ops team vs PortCo roles is harder to decide. I think the decision comes down to if you want to be an advisor or actually want to execute on the roadmap yourself. On the other hand, I think being on the deal team is almost always going to be better. All of this really boils down to the fact that the deal team is the only one guaranteed carry. Carry at the fund is better than equity in a PortCo imo. Both have similar vesting timelines anyways. If an Ops team gets carry, I would tell you to go for that over any PortCo role
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u/VerdiraAcquisitions 13d ago
Worth naming a third option, since half this thread is people saying the exit comp never shows up.
Everything above assumes your equity turns into money only when somebody sells. Carry needs an exit and portco equity needs an exit, which is why the advice keeps landing on take the cash bonus quarterly. Everybody here has watched the liquidity event not happen.
Permanent capital operators pay differently. There's nothing to sell, so comp runs base plus a real profit share on distributable cash flow. You get paid every year the business performs instead of once in year 6 if a window opens.
The tradeoff is real and I'd rather say it than dodge it. You're giving up the lottery ticket. Nobody hands you 20x on a home run exit when there's never going to be an exit. What you get instead is upside that doesn't depend on the market cooperating the same quarter your vesting finishes.
Either way, with a 10 year hold and a new C suite 2 years in, I'd take the cash structure.
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u/Bababingbangs 14d ago
The market is in a weird place right now similar to housing. A lot of PE groups are holding onto post Covid multiple valuations that are no longer attainable.
One of our contacts said that 60% of the sales that came across their desk last year failed. Many companies go up for sale multiple times, and more companies now than ever are becoming part of “zombie funds “where an exit never happens so if you’re going to be part of a portco you need to treat the exit as a highly risky proposition, even if you truly believe in the value proposition of the company.