Thursday, February 12, 2015

Unraveling and exploding offers in the market for new private equity analysts

The unraveling in this market (which is also highly competitive in salaries) continues. That is, vigorous competition by the timing of (early, exploding) offers coexists with vigorous salary competition.  The NY Times Dealbook has the story.

Private Equity Firms in a Frenzied Race to Hire Young Investment Bankers

"Junior investment bankers who graduated from college only last year are being madly courted by private equity firms like Apollo Global Management, the Blackstone Group, Bain Capital and the Carlyle Group in a scramble that kicked off last weekend. 6.After back-to-back interviews, many are now fielding offers for jobs that won’t start until the summer of 2016.

"This process has become an annual rite by private equity firms, which raise money from investors (like pension funds) to buy entire companies. But it has grown more frenzied since the financial crisis, and it started this year weeks earlier than many in the industry had expected. Fearful of missing the best talent being developed at investment banks, the giants of private equity have turned Wall Street’s white-collar entry-level workers into a hot commodity.

“It’s as if these were star athletes,” said Adam Zoia, chief executive of the recruiting firm Glocap Search, who helps private equity firms hire young workers. “The irony is they are professionals six, seven months out of undergrad. It’s hard to imagine you can tell if someone’s a star or not.”
"Private equity’s recruiters, trying to secure the best workers for their clients, have helped accelerate the interview timeline, so that it is now the norm to interview workers about 18 months before their jobs will actually start. Some private equity executives say this means the candidates, who have barely encountered their first Wall Street deals, are performing more poorly in interviews.

Participants liken the situation to what is known in game theory as the “prisoner’s dilemma,” in which a lack of information causes private equity firms to act according to their own self-interest rather than find a solution that would be mutually beneficial to all parties. Last year, the process started in late February — weeks earlier than the cycle in 2013.

“There’s essentially always a handful of firms that are the catalysts, and that creates this huge domino effect across the industry,” said Morgan Halberg, a partner at the recruiting firm Dynamics Search Partners. “Every other firm essentially mobilizes and has to be reactive.”

"Many participants traced the beginning of this year’s process to a move by a midsize private equity firm in San Francisco. The firm, Golden Gate Capital, extended a handful of offers to young consulting firm employees on Thursday, according to people briefed on the matter who were not authorized to speak publicly.

"This alone was not enough for the rest of the industry to spring into action. Golden Gate, which has a close relationship with the consulting firm Bain & Company, was not drawing from the investment bank pool where the big private equity firms fish. What’s more, Golden Gate’s internal rationale was that it was responding to moves by other private equity firms to hire consultants. At first, rival private equity firms and their recruiters decided to stand down.

"But on Friday, an email circulated through the industry from a Boston-based private equity firm, Advent International, which said it would begin interviewing candidates from investment banks, people briefed on the matter said. The biggest firms knew they could not afford to wait. Recruiters contacted young bankers Friday night, instructing them to show up for interviews on Saturday and Sunday.

"That led to a weekend of sleepless nights and back-to-back interviews for the would-be hires. In a reflection of how early the cycle began, the Blackstone Group, which had started some interviews on Sunday, was in the middle of recruiting interns for this summer. Golden Gate, now feeling pressure from other firms, told at least one candidate to respond to a job offer by Sunday, shortening the deadline from this Wednesday.

"Many had expected this process to start in early March, or late February at the earliest. But by the beginning of this week, some of the biggest firms had already extended offers for the summer of 2016."

HT: Eric Budish

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