The queue to get into private equity just got longer
When, in the early hours of 24 June, it became evident that the Leave campaign was about to edge the Brexit vote, investment bankers in the City started considering their options.
“We had CVs sent through to us from junior investment bankers from 4.30am on 24 June,” says Edmund Thomson Jones, director at private equity recruiters Kea Consultants. “That might have been a pure coincidence, but it seems entry-level private equity roles are about to get more competitive.”
Already, there are around 300 applications for every entry-level role, according to Gail McManus, managing director of Private Equity Recruitment. 10% of those make it through the first stage – usually meeting a headhunter – and then just 10 get put forward for interview.
“M&A activity is expected to slow down. This means that they will be a lot more junior bankers looking for new opportunities and a quiet period also means they have more time. The interview process for PE can be ten rounds over many months, involving hours of commitment,” says McManus.
Just 7% of UK private equity firms have any sort of plans to move out of London after Brexit, according to research by Preqin. For private equity firms with funds already raised, plans remain unchanged.
“There’s no indication that private equity firms have stopped hiring,” says Thomson Jones. “They have money to spend and headcount to fill.”
At the beginning of June large international private equity firms in the UK brought in their analyst and associate classes. It’s good timing for those leaving the sell-side, particularly as investment banking advisory work could be put on ice.
“I’m even more convinced that I made the right choice,” says one new analyst in London who turned down an offer from Goldman Sachs to take an entry level role in private equity.
However, there’s one looming problem for private equity firms. Any restrictions on the free movement of labour from the EU would severely restrict their recruitment.
“80-90% of people we hire into entry level roles in private equity have European language skills,” says Thomson Jones. “Private equity firms are hugely reliant on people from the EU.”
“I’d say 50% of the people we placed this year were from EU countries outside of the UK,” adds McManus. “There’s a huge appetite to hire Germans and those from Scandinavian countries, because there are so many investment opportunities there.”
The analyst we spoke to studied at HEC in Paris. He interned at Goldman Sachs in their first year – in France – and then spent the summer at the PE firm in London before securing a full-time offer.
“The Brexit vote makes my future in London uncertain,” he said. “Without the free movement of labour, there’s also no way that I could have secured this job.”
Private equity firms, particularly U.S. companies, are unlikely to shift their HQ across to continental Europe, believes McManus. “They all have satellite offices in these locations. It may be a case of basing a few more investment staff there.”
The combination of investment banks potentially cutting their analysts classes this year and restricted access to EU talent should, in theory, mean that getting into the buy-side will be easier. Unfortunately, this is unlikely.
“There might be fewer applications from investment banks, but there’s still a healthy supply of people moving from consultancies,” says Thomson Jones.
“Private equity firms attract the best and brightest – it’s just the nature of the business,” says McManus.