Banks promote from within for private equity
Looking to make a move into private equity? Investment banks are too, and they could have jobs on offer for internal movers out of leveraged finance, financial sponsors or M&A.
Richard Collins, director at Stevenson James Search & Selection, says banks such as Goldman Sachs, Merrill Lynch and Citigroup are more likely to hire internally to grow their private equity teams.
"It will be interesting to see whether they hire externally to build up capacity within these divisions," Collins says. "Historically the private equity/principal finance divisions within these banks have recruited internally for analysts and associates from their own financial sponsors, corporate finance and leveraged finance teams."
Where banks don't have sufficient expertise in-house, especially at a senior originator level, Collins would not be surprised to see external talent brought in.
Pay varies by bank. Collins says, "It depends on whether the bank is investing from its own balance sheet or whether third-party money has been raised, and in this instance it is conceivable for fund carry to be offered." Fund carry, or carried interest, is compensation based on profits made by a private equity fund.
Investment banks' private equity arms usually co-invest alongside private equity firms rather than lead deals to avoid conflicts of interest. One exception to this rule is Goldman Sachs. It led the bid for Associated British Ports amid tough questions on how its private equity investing could operate alongside its advisory business.
But Goldman is in the fund-raising lead as well. The total aimed for this year is running at $18bn (9.5bn) according to Financial News, with Goldman scheduled to land $10bn of that amount after the summer. Bank of America is the latest to the table with a $1bn fund raised in the US. Bear Stearns Merchant Banking, Citigroup and Lehman Brothers all have multi-billion-dollar funds raised or about to close.
Compared to the giant deals of the buyout industry, such as Blackstone Group's record $15.6bn fund raised last month, such sums might seem small. What they highlight, however, is the fact that banks will follow wherever potential profits will lead.
And the buyout business is big business. According to Private Equity Intelligence, no fewer than 700 new funds are trying to raise $342bn this year as compared to last year's $200bn.
Henry Kravis, cofounder of Kohlberg, Kravis, Roberts & Co, told Bloomberg late last week he had never seen the buyout market so buoyant, with more capital for leveraged buyouts rushing in from hedge funds and other investors to finance deals. KKR is on track to close its own $15.5bn fund.
