The new reality of switching from investment banking to private equity

If you’re a junior investment banker pondering a move across to private equity, there’s some good news – private equity firms, faced with a shortage of talent in investment banks are becoming more flexible.

This doesn’t, however, mean that it’s getting any easier. Private equity firms still want ‘winners’, they still want the elite, but they’re willing to cast that net even further or take a chance on someone with little to no experience.

“Private equity firms are targeting investment banks’ analysts earlier and earlier,” says Gail McManus, managing director of Private Equity Recruitment. “Analysts who started in summer 2014 are already being targeted because suitable candidates from the class of 2013 have been depleted.”

Brianne Toole, the investment banking consultant at recruitment firm Selby Jennings, agrees that juniors in banking are being targeted ever earlier. “Private equity firms are getting analysts to commit to jobs just six months into their investment banking career – or 18 months before the job is due to start. Investment banks have responded by increasing pay – it will be interesting to see whether this has worked in the coming months.”

All of this suggests that moving into a buy-side role is a piece of cake. However, this is definitely not the case. Our own stats suggest that there are 56 junior investment bankers available for every available private equity job requesting 0-3 years’ experience. McManus says she receives 300 applications for every junior job and that just 20 make it through the initial screening process.

“Private equity firms are expanding their scope not lowering their standards,” says McManus. “They’ve moved from targeting bulge bracket US investment banks to European and boutique investment banks. More recently, they’re targeting the domestically-focused M&A teams at investment banks in Frankfurt or Paris.”

One of the consequences of recruiting further afield is a shift in the recruitment process. Anyone applying for a job in private equity will be expected to find time in their schedule to interview during the working week – no easy task for an analyst in IBD – but later in the process, candidates are being asked at the weekend.

“We’re calling them ‘super-Saturdays’,” says McManus. “The biggest problems investment bankers face is finding time to job-hunt, so private equity firms are now inviting suitable candidates in for an assessment centre and interviews over the weekend.”

What does it take to get into a private equity firm now? "As a junior you need hunger! You have to be motivated," says one director at a private equity firm in London. "It is a given that you will have no or little relevant experience, so it is about demonstrating that you are focused on achieving. You were captain of X team at school, you lead Y university team to victory, you were awarded XYZ, you got a 1st in your dissertation, you're top of your analyst class. Show some drive."

Investment banks have started responding by increasing pay for their juniors, off-cycle. Private equity firms are still only targeting top analysts and investment banks are offering these individuals – and not the rest of the class – up to £5k more, says McManus.

“The 2013 class have been so reduced in size that individuals have been targeted with non-standard pay increases to ward of PE firms,” she says.

Whether this is enough remains to be seen. Most major investment banks have already increased analyst pay by 20% over the past 12 months and private equity firms have responded by hiking junior compensation by 26% year on year.