Breaking into private equity isn't easy. Even if you're a top-ranked investment banking analyst, only 3% of people applying to PE are ever invited to interview - a gruelling process that weeds out sub-par candidates early on - and even then a handful end up with jobs.
But this doesn't mean it's a one-way process. Private equity firms are recruiting for their entry level roles, which pay $200k a year, ever earlier because large buyout firms are paranoid about losing out on talent. Bloomberg suggests that PE recruiters are seeking out junior candidates in January - analysts who started out in August the previous year. If you're a few months into an investment banks' graduate training program and are asked out for a coffee - or invited along to a networking cocktail - don't be surprised. PE firms are interviewing analysts who are still fresh out of college for roles that won't start for 18 months after the offer is extended.
This is not a new trend - private equity firms rarely wait for two-years industry experience that was typically a pre-requisite, but instead want to lock down the best candidates earlier than ever. This silly season started in 2013 when PE firms stopped cooperating on timing and broke ranks to recruit earlier. This year is a record, however, says Bloomberg. The problem is that PE is no longer the only option for investment banking analysts taking sell-side jobs with one eye on the exit options it provides. As we've pointed to previously, tech firms are providing an outlet for juniors - not just the Facebooks and Googles of the world, but smaller start-ups offering regular project management, development or business analyst roles.
“Someone always gets nervous” and starts recruiting first, Josh Grauer, a partner at Dynamics Search Partners told Bloomberg. Then the others quickly follow suit. “Every January, we hold our breath and hope it will start later,” said Susan Levine, the head of private equity recruiting in North America at Bain Capital.
This explains why more private equity firms are starting their own graduate programs. There's an initial heavy lift developing these schemes, but the benefit is that the PE firms get to mould the new recruit into the type of person they want, and look for character traits that probably wouldn't be attracted to banking.
Guy Hands, founder of Terra Firma that's been running a grad scheme for a few years, said earlier this year that they'd scrapped bonuses and cut salaries for new recruits in order to dissuade banker types from applying. "We used to try and pay what Goldman Sachs does, and also give cash bonuses,” he said. “But we decided that it wasn’t attracting the right person – it was attracting people with short-term aims.”
Separately, since former J.P. Morgan investment bank boss Jes Staley moved to become Barclays CEO, the UK bank has poached from his former employer. Tim Throsby, the head of Barclays investment bank, was previously head of equities at J.P. Morgan and joined in January. Its COO came from J.P. Morgan, its chief information officer came from J.P. Morgan, and so did it chief risk officer and chief operating officer. This has not gone unnoticed at Barclays, and both banks have denied in the past that they made an agreement for Barclays to stop poaching from the U.S. bank. But the FT suggests that a leaked email from a Barclays executive showed that the two banks “have agreed to a 1-year ban on hiring any JPMC employee by Barclays”, particularly in corporate and investment banking. This is a potential problem for Barclays - as the FT points out no-poaching agreements can be illegal under U.S. antitrust laws, and the U.S. Department of Justice has already been investigating whether it reached a deal with J.P. Morgan.
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