by Brian DeChesare Comments (4)

How to Move from Investment Banking to Private Equity in Brazil: No More Headhunters?

Brazil Private Equity - Sao Paulo Brazil Octavio Frias de Oliveira Bridge

Bankers often move into private equity because they want more “control” – of their time, skill set, and decisions.

One irony, at least in the U.S., is that they have far less control in the recruiting process, where headhunters determine everyone’s destiny.

But there is an escape route: Go to a market where headhunters don’t have much power.

The perfect example is Brazil, where you can get in without going through headhunters at all – like our reader today did:

The Industry Landscape

Q: Can you summarize your story for us?

A: Sure.

Without going into too much detail, I graduated from a top university in Brazil, worked at an international bank for a few years, and then moved to an international private equity fund.

Q: Fair enough.

Let’s switch topics: Can you tell us what the private equity industry in Brazil is like as of 2017?

A: The industry is still quite small; Brazil-focused funds have raised between $1 and $10 billion USD per year over the past ten years, with higher figures for a few years, such as 2011.

The total value of PE deals tends to be between $1 billion and $10 billion USD per year, spread across a total of 50-100 deals.

By contrast, in North America alone, there are ~2,000 PE deals each year that are worth $200+ billion total.

Despite the smaller market, most of the global mega-funds and sovereign wealth funds have opened offices in Brazil, but there are a few, such as Apollo, that are still not here.

The most active international funds are Advent, Carlyle, General Atlantic, Warburg Pincus, and H.I.G., but Apax, KKR, TPG, CVC, and Blackstone also have a presence.

The most active domestic funds in the last five years have been Patria, BTG Pactual Merchant Bank, GP Investments, and Tarpon.

Firms here are selective when doing deals because of currency depreciation and the economic/political crisis over the past few years.

The BRL/USD exchange rate is significant because international funds usually report their returns in USD, so solid returns in BRL could easily turn into mediocre returns in USD.

A “large deal” is one for over $300 million USD, and there are only a few domestic funds that can compete with international mega-funds for deals in that size range.

Funds have invested across industries, including some non-traditional ones such as energy.

But the big wins have come mostly from industries that PE firms traditionally target, like consumer, retail, education, and healthcare, all of which benefited from increasing consumption and a rising middle class in pre-corruption-scandal times.

Traditional leveraged buyouts are not common because interest rates have been very high historically (often between 10% and 15%), and many companies view mid-to-high levels of leverage as dangerous.

As a result, the main returns driver is growth rather than debt paydown.

Since many verticals here are highly fragmented, some funds have succeeded by consolidating industries and turning smaller companies into leaders via roll-up deals.

The average holding period varies, with some funds pursuing “quick flip” IPOs when the market is hot, and other funds holding companies for 7-8 years if they’re using a roll-up strategy.

The Recruiting Process: No Banking or Headhunters?

Q: Great, thanks for that overview.

What types of candidates are private equity funds seeking?

A: As in other countries, the “investment banking to private equity” path is quite common here, and you typically need to be at a bulge-bracket bank, elite boutique, or top three domestic bank (Itaú, Bradesco, and BTG Pactual) to have a good shot.

One difference is that you do not necessarily need to work in banking full-time to get into PE; you could do an internship while in university and then convert that into a full-time offer.

Many undergraduates worldwide now complete private equity internships, but the chances of winning a full-time offer afterward are much lower in the U.S. or U.K.

The conversion rate is higher here, which is why many students do part-time internships in their senior year and attempt to win full-time offers like that.

Many smaller/middle-market funds and a few large funds prefer to hire and develop interns rather than recruiting from banks or other PE firms.

In theory, you can get into PE from other fields, such as management consulting, but in practice, it’s not too common because the industry is so small.

Q: How would you compare the recruiting process with the one in New York?

A: It’s not at all like the process in NY where Analysts at large banks go through intense, structured interviews with mega-funds in 48 hours.

Instead, it’s much closer to the “off-cycle process”: Opportunities pop up once in a while, usually when Associates leave for MBA programs or other funds, and you go through interviews and start working right away if you get an offer.

The entire process might take from 3 weeks up to 3-6 months depending on the fund and their hiring needs.

In that time, you’ll complete 1-4 rounds of in-person interviews with everyone in the office (most funds here have 4-20 people), a modeling test, and a final interview with the Head Partner or Head MD of the office.

You might also do video interviews with senior staff in overseas offices if you’re interviewing at an international fund.

Headhunters are aware of job openings and sometimes present them to candidates, but they do not play a huge role as they do in the U.S.

Since the Brazilian market is quite small and since most firms are based in São Paulo, news of PE job openings spreads quickly.

Firms don’t need headhunters to “filter” candidates or coordinate the process to the same extent they do in NY.

So, it’s feasible to reach out independently and network your way into these roles, even at mega-funds.

Q: Well, that’s some positive news, at least if you’re at the right bank…

What should you expect in interviews and case studies?

A: Interviews are similar to the one in NY, London, and other places.

Common topics include “quick IRR math” questions, market/industry discussions, your deal experience, and your knowledge of the overall private equity industry.

You’ll almost always receive a modeling test, but there isn’t one standard format: You could get a 30-minute “paper LBO model,” a 1-3-hour test, or a take-home test where you have 3-7 days to prepare a model and investment recommendation.

One difference is that you will not necessarily build a traditional LBO model.

You may have to build a full-blown 3-statement model with a debt schedule and support for a Revolver, but the leverage may be so low that it’s more of a growth equity deal.

Q: What makes the difference in these interviews? Why would one candidate receive an offer over another candidate?

A: This answer may sound trivial, but it helps to have a genuine reason for wanting to work in private equity.

Many candidates here are well-prepared, but they want to enter the industry only because of the perceived “good hours and great pay” – which is not even the case for all firms.

In the U.S., this point might not matter because the interview process moves quickly, and the mega-funds all have big teams.

But if the team has only 5-15 people, and the interview process takes 3-6 months, you will not be able to fake your way into genuine interest here.

While you need to answer technical questions and case studies competently, you should not prepare for them at the expense of “fit” questions and getting to know everyone on the team.

On the Job in Private Equity

Q: You just mentioned that not all firms necessarily offer “good hours and great pay.”

What has the job been like so far?

A: It’s a much better fit for me because we spend more time and energy analyzing fewer opportunities and portfolio companies.

In banking, by contrast, we did a crazy amount of work on many deals in a short period.

The hours vary substantially; if there are no pending deals and no big developments with portfolio companies, we might leave at the end of the normal workday.

But when a deal goes live, it turns into IB-style hours all over again, with the added pressure of delivering flawless work that can justify a huge investment.

There is often a significant age gap between Analysts/Associates and VPs/Directors/Principals/MDs, so you have to be better at getting answers yourself and thinking independently.

You can’t get each person up the chain to check your work line-by-line because the older people don’t have the patience for it, and the teams are much smaller.

Q: Thanks for explaining that.

Can you comment on the compensation?

A: Some investment banks in Brazil can pay on par with the top PE funds and offer a work/life balance that isn’t much worse.

It’s not like the New York market, where mega-funds are guaranteed to pay a premium to IB compensation.

Since there’s less of a disparity in hours and compensation, some professionals here prefer the fast pace and deal flow in IB and ‘get bored’ looking at the same deals and portfolio companies over 1-2 years in PE.

I prefer a more deliberate pace, but I do miss the camaraderie with other Analysts and Associates in IB.

There’s less of that here because of the age gap, smaller teams, and more independent work.

So, I think it’s harder to make the case that private equity beats investment banking for all candidates here.

A lot of it comes down to your preferred work style rather than hours/compensation.

Q: Great. Thanks for that summary, and for your time!

A: My pleasure.

M&I - Brian

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street. In his spare time, he enjoys memorizing obscure Excel functions, editing resumes, obsessing over TV shows, traveling like a drug dealer, and defeating Sauron.

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  1. Having worked as intern at a large local PE fund in Brazil some time ago, I agree with what has been stated. I’d only add that the environment and the compensation are quite different from what is practiced in the US. Local funds hardly ever pay more than local Investment Banking roles, and sometimes it isn’t very clear why somebody is getting a promotion. Brazilian Funds should think for a while and learn more from the Largest American PE Funds, which are very good at strategy and operations.

    1. Thanks for adding that, and yes, local funds definitely pay at reduced rates, so it seems like international funds are a better option.

  2. Hey Brian,

    Thanks for the article. One quick question, is it possible to move from ECM/DCM analyst position after 2/3 years straight to an associate role to M&A division within the same bank? (and so avoid long hours in M&A)

    Cheers
    Jacob

    1. It’s possible, but it would be difficult without spending at least some time in the M&A group first. And if you want to avoid long hours, you’re in the wrong industry.

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