From Private Equity to Trading: Shady Deals, Soft Skills and Trading From Home

Ah, Private Equity, the Mecca of finance. Everybody wants in, from investment bankers to management consultants to business development executives.

Once you’ve clawed your way to a coveted position, you stay put and advance within your firm – or you receive a hefty pay increment and move over to another PE Fund.

The one thing you don’t do is leave. Voluntarily, that is.

And yet, our interviewee today did just that: he left a cushy position as an associate at a small Singaporean PE Fund to trade futures from home.

You’re probably thinking to yourself that this sounds like a ridiculous move: after all, why leave the Promised Land to become a day trader working from home in your bathrobe?

We’ll cover that one and more, including:

• How to break into PE from trade finance
• The pros and cons of working at a local PE Fund
• What PE firms look for and the importance of “soft skills”
• How deals in Asia can sometimes be (more than) a little “shady”

A Fortunate Break

Q: Let’s start from the very beginning. Can you tell us about your background and how you ended up in private equity?

A: Sure. Let me start off with the disclaimer that my path is a pretty unusual one and that I’ve never heard of anyone else who entered the industry in quite the same way.

I studied Finance and Computer Science in Chicago a couple of years back. Similar to most finance students, I was interested in getting a job in banking but even back then, things weren’t all that rosy in the industry.

I ended up accepting an actuarial position in an insurance company for about a year before I came back home to Singapore to start afresh. I did a short stint at one of the larger commercial banks, working in their Corporate Banking department before I was eventually ‘poached’ by a Trade Finance firm.

I spent about 2 years learning the ropes there, when one of the Private Equity firms my company was working with surprised me with a job offer.

Q: My my, it sure sounds like you’ve had a pretty varied career! So you didn’t have to interview for the role at the PE firm?

A: Nope, it was extremely informal. I actually got my previous Trade Finance gig in similar fashion as well.

A lot of it has to do with being in the right place at the right time. It also helped that the nature of my jobs required a fair amount of networking with financial institutions.

I was already helping the PE firm with some of their financing requirements and we had frequent contact over the years so I guess I was a pretty good fit.

You see the same sort of thing sometimes when bankers make a move and go work in the finance or business development departments of normal companies: frequently they go to previous clients, or at least companies they have worked with a lot.

Of Schmoozing and Shady Deals

Q: You must have really impressed people in order to get your jobs this way. I guess you won’t be able to help us with any interviewing tips then!

Can you tell us a little more about the PE firm you were working at?

A: Well, frankly, it wasn’t a large fund. It would have been extremely unlikely for me to get a job the way I did at the likes of KKR or Blackstone. We had assets under management of about $50-60 million and we actually did a combination of a lot of different things.

It’s difficult to classify exactly what we did but it was an interesting mix of consulting, business development, and origination.

Q: I see – so in the world of PE it would be considered quite a small fund, since the AUM was under $100 million.

What exactly was your role in the firm and what kind of deals did you work on?

A: That’s very true, though our size didn’t seem to hamper us from doing deals – companies also tend to be smaller in Asia and in emerging markets, so you don’t necessarily need as much capital.

My firm had a flat structure so I didn’t have a fixed title – at a conventional firm, I guess I would have probably been considered an “Associate.” I was thrown into the deep end from the very beginning and I was expected to originate business from the get-go.

Things were actually done quite differently at my firm and I never had much of a chance to showcase the financial modeling skills that I had painstakingly picked up by myself. The emphasis was on “soft skills,” and we did a lot of schmoozing.

I can’t go into too much detail about the deals we did, but when I first joined, there was an interesting mining project that we were invited to participate in. It was in a third world country and it was quite surreal to see how business was done there.

Q: C’mon, don’t leave us hanging like that. Tell us more!

A: Well, how business gets done in these places really depends on who you know. You could be given preferential access to a project simply because you developed strong relationships with a high-ranking member of the government.

You’re dependent on your partners if you don’t know the local language, and this turned out to be a much bigger problem than expected.

Many businessmen brush aside cultural factors when making deals but it’s really something that shouldn’t be taken lightly.

The bottom-line: think very, very carefully before you jump into a small PE firm like this one that operates in developing countries and does deals where there may not be much insight into the underlying business.

Q: Ok, before we digress too much, let’s go back to the topic at hand.

How were the hours and culture at your firm?

A: The culture was actually pretty relaxed. We only had a team of 6 and the company was pretty tightly knit.

Hours were pretty ad hoc, depending on what we needed to do. I usually got to the office by around 9 and stayed until 6 – 7pm. As long as you got your work done, nobody was going to bug you about the hours you kept.

Of course, whenever there was an important deal going on, there’d be stretches of time when I’d have to work pretty late, but all of this comes with the job and our deal flow was always manageable.

Q: You mentioned that your company operated on a flat structure. Can you tell us more about progression in the firm?

A: There wasn’t any real progression, honestly. Everyone was doing the same work. You simply got paid a little better the longer you were in the firm.

Q: So what was the pay and bonus structure like then? Was it in the same ballpark as the international firms?

A: Not at all. My firm was Singaporean and the local firms here don’t pay very well compared to the international ones.

Some of the local firms like to “milk” the fact that all the finance grads are so enamored of the industry that they’ll take up any PE job just to “break in.”

My firm doesn’t hire fresh graduates, but I’m aware of a couple of local firms that pay drastically below market rates.

The fresh grads starting out at small, local firms usually start off at around $35,000 – $40,000 USD.

And that might only go up by around 5-10% per year for the first few years.

I’m actually fairly lucky as I was “poached” after working for a few years, so I got a substantial pay increase over my previous role.

When I joined, my base pay was probably the equivalent of an entry-level investment banker at a bulge bracket bank.

The bonus structure was pegged to performance – I got 4 months of my base salary for my bonus the first year, and 12 months of my base salary for my bonus the following year.

A Drastic Career Switch?

Q: I see… people rarely leave PE once they break in, so it seems like you’re one of the exceptions here. But given what you just described of your firm, I can guess why you left.

For the record, though, why did you decide to leave the industry to trade from home?

A: I guess it was a combination of factors. I enjoyed working in PE, but even though I was being paid relatively well, I felt that I wasn’t being properly compensated for what I was bringing to the table.

At the end of the day, my bonus was still being decided by someone else. In my second year, I brought in a lot of business for the firm and frankly, I wasn’t very happy that I only got a year’s bonus for that, given how much they made from it.

In trading, by contrast, the profits or losses you make are your own. You’re entirely dependent on yourself and no one else. That’s something that really resonates with me. Trading is very much a business for me, and like all good businesses, it allows for scalability of income.

Q: But aren’t the skillsets required very different? Many of our previous interviewees have commented on how difficult is to move from a “deals role” into a “public markets role” or to do the reverse.

How did you manage to transition from PE to trading full time?

A: Well, I’ve always been interested in the financial markets, and I had been trading on the side ever since I first started working.

You’re right that there weren’t many transferrable skills when switching from PE to trading. I actually code and trade automated systems, so my computer science background was more useful than my experience in PE.

I enjoy the analytical precision of programming ideas, and being able to break down tradable ideas into code. There’s a rare combination of cerebral thinking and simplicity that appeals to me – it takes a lot of thought to come up with a testable idea, but after that, it’s all iteration.

I’ve been profitable every year since I started trading, and I was actually fairly confident that I could scale these profits up if I dedicated myself to it.

Don’t get me wrong, though – it wasn’t an easy decision to leave my job. It was a pretty cushy existence, and I could have always continued trading on the side.

Q: So do you feel that the career change has been worth it?

A: Definitely. I used to be a little unsure, especially at the beginning when income flows were more erratic. Back then, I constantly questioned myself, and there were times when I just felt like throwing in the towel.

But there’s something to be said about independence. Even back in the beginning, I loved the fact that I earned every cent and it was something that nobody could take away from me.

Things are better now, but that’s beside the point.

I can finally say that I’m my own boss now. I run my own business and I dictate the direction it takes.

Q: Well, that about wraps things up. Here’s hoping that your trading scales sky high. Thanks for everything!

A: No problem. It was my pleasure.

Shen Han Lee lives in Singapore, where he drank copious amounts of coffee and worked as a stock broker for 4 years before taking off on a whirlwind tour around the world, which you can read about on www.knackpacker.com.

Break Into Investment Banking