How did private equity become such a career cul-de-sac?
How did it come to this? Private equity, once the reliable Mercedes of the career autobahn seems to have been relegated to the slow lane. Nor does it pay enormously well. Nor are there many jobs on offer there in the first place.
According to the great annual Glocap survey of US private equity funds, nearly a third of funds now think it will take longer than "the standard five to nine years" to become 'stakeholders', AKA partners in a fund.
During this time, it appears that private equity professionals can expect to be paid quite a lot less than their peers in an investment bank.
According to Glocap, the average PE associate in the US can now command $200k.
In London, David Howell at recruitment firm EM Consulting, says PE associates with 3-6 years' experience can expect a salary of 60-90k, plus a 100% bonus. As we have noted before, this compares unfavourably to the $200-290k that's allegedly on offer to associates in investment banks.
Partners have cleaned up
PE's comparative parsimony towards junior staff is in contrast to the enormous rewards reaped by its partners. Research by Financial News suggests partners at top private equity funds have made more than $10bn in management fees over the past 15 years.
Although UK private equity activity is now rebounding from a 25 year low, similar riches are unlikely to be on offer in future. Fees are now being questioned and lucrative deals are harder to come by.
"It's not as easy as it was to make money," says Professor Eli Talmor, chairman of the Coller Institute of Private Equity at the London Business School. "Deals are much more expensive. And multinationals are cash rich, so there is competition from that angle too."
Aspirations lagging reality?
Despite this, Talmor says his students are bursting to work in private equity.
"It's still number one on the list for every one of my students," he says. "It won't be as lucrative as it used to be, but compared to the alternatives - working as a consultant or in an investment bank - it's conceived as more interesting, challenging, deal-oriented and dynamic. It ticks all the boxes for them."
David Giampaolo, chief executive of Pi Capital, the private equity investor network, is also adamant that private equity is still motoring in the fast lane. "It's a great career," he proclaims. "There is going to be a lack of liquidity in the world for many years to come and PE is one of the areas that will come out on top."
Bankers are becoming passengers
Even cheerleaders like Giampaolo think PE's demand for banking types may have passed its peak, however.
Despite a recent study suggesting that 46% of PE funds' returns between 1998 and 2007 came entirely from the use of debt, the consensus is that operational issues will be far more important in future.
"People who pursue private equity careers must understand that returns going forward are going to come from a lot more operational value-add," contemplates Giampaolo.
In autobahn-speak, this suggests funds will want mechanics who can go under the bonnet and improve performance. Bankers who structure debt and then sit back with their foot down are going to be superfluous to requirement.
