The financial sector is a lucrative career option for many young people, with different companies from banks to private equity firms competing for the best talent. The most recent look into the hiring process shows how frenzied the industry has become. Big private equity firms are currently recruiting the most talented youngster for positions that won’t even start until 2016.
The New York Times published a special report, into the increasingly frantic hiring process, which this year started during the weekend. This week has seen candidates doing back-to-back interviews with big firms like Bain Capital and the Carlyle Group. The report became widely spread across the news media and draw attention even outside the US.
Change After the Financial Crash
The industry has seen some big changes take place in the recent years. The financial crash in 2008 has tightened regulation and in the most recent months, even the usefulness of the traditional leveraged buyout model has been called into question. But the industry also changed its hiring policy and methods after the financial crash. Big firms are now looking at the young talent being developed in the investment banks and the Wall Street.
For many candidates, the traditional roles at big banks weren’t as lucrative any more with the industry having to deal with a negative backlash from the public. Private equity firms on the other hand were managing relatively well during the tough times and ended up becoming one of the most sought after destinations for young workers.
At the same time, private equity firms have found a new competitor for the talent, as Silicon Valley is becoming a core interest for many graduates. People around the world are finding more, and often very lucrative, opportunities in non-traditional finance sectors.
Interview Season Starting Earlier Every Year
The competition among firms is definitely heating up and even mid-size firms are now trying to snatch the best talent away from the big players. It isn’t a surprise to see firms recruiting graduates 18 months prior to the start of their roles. The San Francisco-based firm, Golden Gate Capital, which selected a handful of candidates for its interview process, orchestrated this years interview spree.
The firm’s early call to action ended up creating a strong response from other firms, which quickly gave deadlines for their own candidates for signing a contract. For young candidates, the previous weekend turned into sleepless nights and frantic discussion about the best possible career move.
But some analysts also argue the current trend to hire analysts straight from the graduation party creates problems for the firms. Adam Zoia, chief executive of the recruiting firm Glocap Search, told the New York Times, private equity firms treat these young minds as they are “star athletes”. “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,” Zoia said.
Attracting this young talent has caused some private equity executives feel the candidates’ performance drop in recent years. Analysts who haven’t yet gained foothold in Wall Street have to impress top private equity firms of their talent without many deals in the pocket.
Some candidates are supposedly calling the situation as a classic ‘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.”
Firms Are Winning the Battle
The most recent data shows that even though different sectors are increasingly competing for the same talent pool and the candidates are ever younger, private equity as an industry is winning the battle. A recent report by Vettery, a start-up recruiting firm, shows that for Wall Street’s juniors the private equity sector is the most sought after place. From Wall Street’s junior bankers who had two-year contracts in 2012, 36% went onto join a private equity company, with only 27.5% continuing working in the same division of the bank they were in.
It isn’t a big surprise either, as the pay for private equity associates can be a great incentive. According to the article, a young associate could be earning up to $300,000 a year, including salary and bonus. If you stay at a bank, you are likely to get just half of that. Jeff P. Visithpanich, a managing director at the compensation consulting firm Johnson Associates, said, “Private equity is the preferable place to be in terms of compensation”.
Furthermore, another surprising winner has been the different preparation companies, which have helped provide finance graduates sample interview questions and tips. For instance, Wall Street Oasis, an online forum for finance workers, has seen its guide being sold at an impressive rate. Demand for this type of knowledge has the company wondering if a similar product for the hedge fund industry would have same demand.
Changing the Way the Industry Works
As well as having a more frenzied interview process, the sector is reinventing itself. In a Wall Street Journal interview, David Bonderman, the founding partner of private equity firm TPG Capital, said the traditional fund structure is losing its prominence. “We’ve had the situation where for the longest period of time, there was acceptance from the LP community that ‘one size fits all’,” he said. But the times are now changing and there’s more appetite for co-investing.
Furthermore, the sector is constantly luring in more participants, and not just the young candidates looking for a start to their careers. Wednesday also witnessed reports that the Koch brothers are setting up a company focusing solely on leveraged buyouts. For many young graduates the sector is a great place to work in, but the competition for the deals and spots in the big firms is definitely heating up. The industry is also set to find new alternative models for fundraising as well as investing its equity.