Is Goldman becoming a mere training ground for hedgies and private equity professionals?

Analysts at Bernstein Research are concerned on behalf of Goldman Sachs and Morgan Stanley. While they rate them as outperform, they're worried that both are in danger of becoming "trainer" institutions that simply hothouse talented youths for elsewhere.

The angst emanates from new rigorous compensation restrictions applied to banks' pay.

In the UK there's The Tax, the fact that the 26 largest institutions need to have their bonus pools signed off by the UK government, and the obligation to defer at least 40-60% of pay. In the US there's the fact that deferrals now last 5 years instead of 3 historically.

'In a worse case, the new compensation rules could lead to a new model of Wall Street in which new talent is trained and gains client relationships at the large capitalization "trainer" banks and exits later in their careers to monetize their Rolodexes at boutiques, private equity firms and hedge funds outside the spotlight of government oversight,' fret Bernstein's analysts.

In our opinion, however, they're fretting unnecessarily. Goldman and Morgan Stanley have long been training grounds for private equity and hedge funds, and the situation is unlikely to deteriorate dramatically overnight.

If anything, hedge funds are less interested in pilfering banks' talent than previously. These days, both Marshall Wace and Man Group take on graduate trainees of their own, for example.

Private equity funds remain eager to hire out of banks, but their appetite has fallen and their tastes are highly refined. "The bigger funds generally tend to hire senior analysts or junior associates," says Abid Hussein at recruitment firm AIH Advisors. "They usually only hire top ranked people from top tier firms," he adds.