In his early career José Miguel Guzmán has worked in positions at one of the largest PE shops in the world, and one of the largest pensions–putting him in a unique position to compare and contrast the experiences.
From 2013 to 2016 Guzmán served as an associate at New York, New York-based Cerberus Capital Management. Then, from 2016 through earlier this year, he served as a private equity investment officer for the New York City Employees’ Retirement System. I caught up with Guzmán this week to get his insights into the advantages and disadvantages of working for GPs and LPs. Below is a record of our conversation, edited for length and clarity.
Tell me how you broke into the private equity business
In 2009 I attended Wharton to get my MBA. Fortunately, I was accepted into a leadership development coaching program. I told them I wanted to work in private equity, and I was matched with a mentor at Ceberus Capital Management. After fostering the relationship with my mentor for three years I made the move to Cerberus as an associate. There I had a dual role—performing due diligence on acquisitions and assisting portfolio companies with strategic and operational initiatives. I spent a lot of time in Europe and Latin America traveling and learning about their economies and really understanding the landscape. I worked on companies in a variety of industries. They included a real estate services company in Madrid, an iron ore mining company in Brazil, a hotel in Puerto Rico and a defense contractor in Washington DC.
How were you able to move to the public pension side?
You have to network as much as possible. It’s a small community. People don’t tend to move that often. I got my break at a private equity conference hosted by the National Association of Investment Companies. That’s where I met the New York City pension head of private equity. He was moderating a panel. We exchanged business cards. We had lunch. We started a dialog. He told me he needed help managing the program. It took about five months—but it all started with that first meeting.
Tell us about your role at the NYC pension
My role was predominantly to perform diligence on fund investments across all private strategies, including buyouts, growth equity, special situations and secondaries. Over three years I deployed about $3 billion across 11 funds, both large and small. I was very active trying to find new opportunities, such as a communications buyout firm. The pension fund backed their second fund at the end of 2018. I also helped with the development of a co-investment program, although it’s still in the conceptual stage. As a New York City kid who grew up in Brooklyn, I was proud to be able to give back to the city by helping the pension plan and its pensioners.
How would you compare the experience of working at a GP and an LP?
There is a stark contrast. When I was at Cerberus, we were able to execute and perform due diligence fairly quickly. In the process we uncovered all the details of a business, which you don’t get to see as an LP. We assessed the management team, the industry, the operational risks; we looked at legal, finance, compliance, IT. At the New York City pension plan, we saw the broader picture and the overall landscape. We got to see all types of strategies, from large firms like KKR and Blackstone to first-time funds. In evaluating them there tends to be scrutiny around underperforming investments. I learned that the most common reason for underperformance was a bad assessment of the management team. The CEO wasn’t aligned with the GP and wanted to take the company in a different direction.
What’s your advice to students trying to decide between a career at a private equity firm and one on the buy-side?
It depends on what you want to do with your career. At a private equity firm you’ll get great training and an understanding of how to assess businesses and companies. The downside is that you tend to be siloed. You might not see the big picture. And if you end up in the wrong silo you can lose time getting out. On the buy-side you get to understand and see what makes a great private equity firm—strong performance with a differentiated strategy, a rigorous due diligence process, great infrastructure in finance, compliance, ESG. You’ll learn the political landscape, and the different levers that get pulled between government and the private equity industry. But don’t expect to move as quickly. It’s the complete opposite of a GP, where due diligence on an investment can take six weeks. At a large institutional investor it can take six to nine months.