Unraveling of private equity recruiting

Can competition by speed play a big role in a market in which there's also a lot of competition by price? You bet it can. The NY Times has the story: A Mad Scramble for Young Bankers Wall Street Banks and Private Equity Firms Compete for Young Talent

"A battle is raging on Wall Street as never before, with powerful factions scrambling for control of a precious resource.

On one side are the giant investment banks, with names like Morgan Stanley and Goldman Sachs. Lined up against them, but also warring among themselves, are the giants of private equity — Kohlberg Kravis Roberts, Apollo Global Management and the Blackstone Group, to name just three. And the private-equity firms just happen to be the banks’ clients.

The prize they are fighting for is young talent.

This summer, dozens of junior bankers in their early to mid-20s will start jobs in private equity after spending their first two years out of college working at investment banks. Private-equity firms use billions of dollars of cash and plenty of debt to buy entire companies. They are seen by many young strivers as the next rung on an elite career ladder, promising higher status and more pay — around $300,000 a year, including salary and bonus, roughly double what a second-year banker might earn at Goldman.

But for junior bankers, who are known as analysts, securing such a job means stepping into the middle of a Wall Street struggle that has intensified since the financial crisis.

The whirlwind process of interviews, which this year started in February, far earlier than many in private equity had expected, requires analysts to sneak around and often miss work. It bears little resemblance to the orderly on-campus career fairs they attended in college.

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To recruit young talent today, the private-equity firms make offers as long as 18 months before a job begins.

This timing is repellent to many bank executives, and not only because their workers are being poached. Promising to take a job with a particular firm can create a conflict of interest for an investment bank analyst, especially one assigned to work with private-equity firms on deals, bankers say.

Goldman Sachs, for example, requires junior workers to resign soon after accepting a job at a private-equity firm. Such a rule is at odds with private equity’s recruiting timeline, leaving many junior bankers to ignore it. And the recruiting process, despite a recent attempt to change it, has grown only more frenzied.

This year, on a Thursday night in February, a handful of investment bank analysts saw their cellphones light up. Amity Search Partners, a major recruiter, told the analysts to prepare to interview the next morning, for jobs that would start in summer 2015.

Already, these analysts — fresh graduates of elite universities who were only about six months into their first jobs on Wall Street — had attended cocktail events and breakfasts sponsored by private-equity firms. But now it had emerged that smaller firms were already interviewing. So one of the biggest players in private equity, Apollo Global Management, which had hired Amity, was quietly taking its own process to the next level, weeks earlier than its rivals had expected. (Representatives of Apollo and Amity declined to comment.)

Word spread quickly, sending other recruiters into strategy sessions that stretched into the wee hours. Recruiters are often paid fees equivalent to about a third of the first-year compensation of workers they place.

One private-equity firm, Silver Lake, scrambled to set up interviews for that afternoon. Kohlberg Kravis Roberts scheduled interviews for that Saturday.Bain Capital, which had planned a preliminary get-to-know-us event for Friday evening, received a number of cancellations from analysts already interviewing elsewhere.

The machine was in motion — a situation that made hardly anyone happy.

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“It’s bad for the candidates because they have to make decisions really early,” Mr. Sheyner said. “It’s really bad for the banks. They just hired those people a few months ago. And it’s bad for private equity because they don’t have a track record to go on.”

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Wall Street has tried before to bring some order to private-equity recruiting. The six major private-equity firms, after years of interviewing candidates far in advance, decided two years ago to wait.

The companies — Apollo, Bain, K.K.R., the Blackstone Group, TPG and the Carlyle Group — all chose to wait until January 2013 to recruit the workers who would start that summer, according to two people with direct knowledge of the situation, who would discuss private business matters only on condition of anonymity.

But the détente soon fell apart. Smaller private-equity firms had done their recruiting on the earlier schedule. The giants grew concerned that they might be missing out on the most desirable candidates.

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In April 2013, the six biggest companies returned to their early schedules, and the next cycle began, with junior bankers getting offers to start in the summer of 2014.

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Such policies have pushed recruiting further into the shadows. At Goldman, analysts whisper about the time in 2012 when the firm cracked down.

That year, certain analysts, whom Goldman believed had job offers from private-equity firms or hedge funds, were pulled into conference rooms and asked, point blank, about their employment plans, according to an analyst in that class and another person briefed on the matter.

“The majority of us lied,” the analyst said, insisting on anonymity so as not to damage his relationship with Goldman.

Goldman ended up dismissing several analysts who acknowledged they had accepted offers, sending ripples of anxiety through Wall Street’s junior ranks. The financial gossip blog Dealbreaker ran a post with the headline, “Goldman Sachs Does Not Look Kindly Upon First Year Analysts Who Plan In Advance.”