10 ms·

Wall Street Banks and Private Equity Firms Compete for Young Talent

64 points by a5seo 12y ago

Balgair 12y ago
Sorry to be a cynic, but: "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." Really, I don't think there will be too much hand wringing for these folks.
- tootie 12y ago
  It's not a matter of professional ethics, it's a matter of them making decisions in favor of their future employer to the detriment of their current one.
  - uptown 12y ago
    Sounds like the revolving-door career path that many politicians follow.
    - spuiszis 12y ago
      It's exactly like that.
  - Balgair 12y ago
    How is that different than just, you know, ethics?
    - tootie 12y ago
      It isn't, my point is just that the IBs don't give a shit about ethics if it profits them. Only when it costs them money.
lmg643 12y ago
The whole time I read this article, I could only think of PG's "The Submarine." http://paulgraham.com/submarine.html http://paulgraham.com/submarine.html This article describes a process that's being going on for decades, but manages to do so while imbuing a "drama" that only a headhunting firm could truly muster (or the guy who wrote the book selling for $299). It's true, that the pressures have ramped up over time as private equity becomes a monster approaching the size of the banks themselves. But at root, this article is about people in one great job, looking to go to another great job. News, indeed! Nice work to the press people who put this together.
- JTon 12y ago
  Just read The Submarine for the first time. For those who haven't, it's well worth it. Very enlightening. Still very relevant today seeing how it was written in 2006
  - VonGuard 12y ago
    Journo here. Very, very true. PR runs most of the stories you see. They don't usually run the hard news, like disasters and such, but they often glom onto those things so after a day or two, it's hard to tell who's actually reporting, and who's just regurgitating, and who's being spoon fed bullshit. We could debate the many reasons for this fact, but suffice to say that there is A: a lot of money riding on getting such stories printed, and B: not enough time in the day or money to pay journalists to do the real work. This plays out in a couple ways. The most common form is where the PR firm is also representing a company that advertises in the outlet. The New York Times writing about suits was probably printed on a page next to an ad for Macy's. The editorial guys are not complicit, but it's become common for sales to make "intros" to editors at parties and such. It's gross, but common. Another way it plays out is that we get some amazing, long article with in-depth journalism that's just the best thing you've ever read. Then no one reads it because it's really long and doesn't have pretty pictures, so compared to the story linked next to it on the front page, it's basically a one or two day blip in the system, then it's forgotten. Meanwhile, that other story with a title like "Docker will revolutionize datacenters," or "Google Glass User Assaulted," are getting the same number of hits, and they took about 10 seconds to write, so as a journalist, it can be a bit frustrating to be beholden to "hits," rather than to "quality." Which, frankly, is what most journos are dealing with. Most outlets want quantity over quality. That means the writers tend not to understand what they're writing about, but rather, they're just flying over and giving a scouting report in a vain attempt to be first. The Wire got this soooo right in season 5. Beat reporters need to cover their beats. The smaller the beat, the better they should be able to cover it. If you have one reporter on programming only, you can really get the pulse of the industry, rather than just having your tech reporter check in every 3 months. Journalism remains broken, with many examples of great work being ignored in favor of "10 reasons Beiber is made of plastic, and what types of plastic those would be if he were made of them," stuff. How are we going to write about people places and events when those people places and events are writing about themselves for free.
rayiner 12y ago
This situation is always painted as a "prisoner's dilemma" because otherwise talking about coordinating with regards to hiring smacks of anti-competitive collusion. However, I don't think the timeline is, on the net, disadvantageous to recruits. It's hard to argue that folks on a two-year contract at a bank are somehow disadvantaged by being able to line up their next gig a year or more in advance. It's also hard to ignore the fact that the long lead time gives recruits a lot more margin for error, because they get to make a run at private-equity well before their contract runs out at a bank.
- foobarqux 12y ago
  It's disadvantageous because the banks fire them if they find out, usually after simply asking them.
- jessriedel 12y ago
  I'm not so sure. The high-energy physics community created an ethically (but not legally) binding agreement on the date of theorist postdoc offers to prevent a useless race for ever earlier commit dates. >In recent years, we have seen a growing number of early offers with short deadlines for high energy theory postdoctoral positions...We are worried that this practice is preventing young researchers from making a free and fair choice among their job opportunities. And, while there may be some short term advantage for the institutions which do this, we believe it will have serious negative effects in the long run....Thus, we commit to make no postdoctoral offer for the fall of a given year, whose deadline for acceptance is earlier than January 7th of that year. http://insti.physics.sunysb.edu/itp/postdoc-agreement.html http://insti.physics.sunysb.edu/itp/postdoc-agreement.html I think all the postdoc applicants generally like this, so it does seem to be in their best interests. It's very plausible that various private companies have a harder time than HEP professors coordinating on a pledge like this given legal restrictions and the fact that they do not have the common framework of academia. So I think this really could be a prisoner's dilemma.
  - rayiner 12y ago
    There was a similar agreement among federal judges for the hiring of term clerks. There was much gnashing of teeth when the plan broke down, and judges started hiring two years in advance. But I don't think there is any real prisoner's dilemma. What do the candidates lose? It's great to have a job lined up that far in advance. It lets you plan, especially if you have a family. Its obviously more burdensome for judges that way, but if they didn't think it was worth it to break the plan, they wouldn't have!
michaelochurch 12y ago
I think it's important to dispel a certain myth about this sector of finance. Around and past an IQ of about 135, work boredom is a chronic risk and sometimes a disability. If you're in this set, entry-level banking ("analyst" programs) and private equity aren't where you want to go. Past 135 (much less at 140, 150, or even 160) even 8 hours per day of grunt work is impossible, much less 17. There are plenty of 135+ in finance, but either they go for trading and quant or even IT roles, or they move to "the soft side" at a higher level: usually at least VP. So, yes, these people are above average in talent, but they're not "the most talented" in our generation. Depending on bonuses, they're not even the best paid. Oh, and they're the ones who go on to become VCs (not you, programmers, despite your superior talent). The 23-year-olds making half a million in private equity do exist, but they're (a) uncommon, and (b) not especially smart, just connected and unusually able (top 1%) to grind out hours. If you want to become a Master of the Universe, the optimal IQ is probably in the low-mid 120s: enough that you can build something in Excel, but not near the level that brings boredom or anti-authority risk.
- deleted 12y ago
  [deleted]
- peterjancelis 12y ago
  You're over-thinking the IQ part. And I know some 20-somethings making $500K and more for PE megafunds. There are some guys from middle class backgrounds there. The connected-but-useless ones tend to get hired in investment banking.
- foobarqux 12y ago
  Plenty of high IQ people in PE and hedge funds, especially those who entered direct from college, skipping IB. They seem to be people who can tolerate grinding though. It may be true that the work gets boring but the alternatives aren't significantly better (how many people at Google are doing substantially more interesting work?) and pay and career advancement are much better.
  - crapshoot101 12y ago
MaxScheiber 12y ago
One reason that you see this sort of behavior in the first place is that very few people are able to successfully become lifetime bankers. The skillset required to be an excellent investment banking analyst is extremely different than the skillset needed to be an investment banking vice-president (or higher). Modeling skills and pitchbook formatting knowledge will do little for you if your job is to try to bring business to your bank. Analysts know that the internal track will end at the associate level (or, more likely, they'd be booted out after two years with no internal promotion to associate at all). Therefore, it makes sense for them to jump ship, and the subsequent prisoner's dilemma also makes sense. What's interesting is that a similar thing happens after two years as a private equity associate, in that almost all PE associates are booted out after two years, being told that they don't have the skillset to be promoted within the shop. At this point, I believe that many employees move onto internal corporate development, but my knowledge here is pretty incomplete about what happens after that break in the track. ("Greatness", perhaps?[0]) [0] http://www.leveragedsellout.com/2007/07/breaks-in-the-track http://www.leveragedsellout.com/2007/07/breaks-in-the-track
- spuiszis 12y ago
  > Analysts know that the internal track will end at the associate level (or, more likely, they'd be booted out after two years with no internal promotion to associate at all) > What's interesting is that a similar thing happens after two years as a private equity associate, in that almost all PE associates are booted out after two years Many PE shops, VC funds and banks do this because they want you to get an MBA. This is why many of the associate hiring positions are described as pre-MBA associate and post-MBA associate. Post-MBA associates are the ones that will go onto internal promotions and potentially the partner track.
mr_doobey22 12y ago
I can't speak for the PE side, but on the IB side be prepared to work with some truly awful tech and systems. Seriously crappy. Given the tech budgets and spend, it is amazing how much duct tape and band-aids hold together the IT systems across the bank.
- dworin 12y ago
  Someone in IT at a large bulge-bracket bank once told me that the reason tech was so shoddy despite the amount they spent was because by the time they did something the "right" way, the market opportunity was gone, or regulations changed and the old rules didn't apply anymore. So fast was much more important than good.
- blibble 12y ago
  I think it really matters which part of a bank you end up in... I've heard some horror stories about back office roles, but I work on a front office trading system and it's the most technically challenging, interesting and plain old geeky role I've ever had.
  - X4 12y ago
    how did you get in?
- pling 12y ago
  And if you think that's bad, you want to see the insurance sector! Data loss is good for insurance businesses in the long run...
hacknat 12y ago
The Epicurean Dealmaker's thoughts (he's an MD for some big shot bank): http://epicureandealmaker.blogspot.com/2014/07/you-go-first.html http://epicureandealmaker.blogspot.com/2014/07/you-go-first....
- MaxScheiber 12y ago
  "The solution to this dilemma, of course, is simple. Private equity firms have become large and rich enough that they should do their own damn recruiting at colleges to hire junior personnel." This is already the case, at least at Wharton. A number of the PE megafunds recruit undergraduates here, specifically Blackstone and Silver Lake. I only really know of one or two offers being extended per year, but that's because private equity shops simply have fewer entry-level positions -- they can therefore afford to be picky. I'm sure that PE middle-market companies also recruit here (my knowledge here is more limited, as I gravitate toward the technology portion of my education rather than the finance portion), but it seems likely that students would take a bulge-bracket investment bank over a middle-market PE shop. It's simple supply and demand.
  - hacknat 12y ago
    Interesting, thanks for the feedback. It's good to hear the other side of the story.
bfwi 12y ago
This article talks about a lot of things these firms do to attract talent. What about just offering more money?
- patmcguire 12y ago
  PE does. But only for some, it's anti-scalable. This is a nice little trick - if you only accept 2% of a highly competent applicant pool, you must hire the best, right? Eh, maybe, but you could just get everyone to apply and make the same decisions. Now you've got brand and people give you money... It's intentionally a ludicrous amount to suggest that they're Just. That. Good. to all their potential clients. But we can't all be payed three times going wage, can we?
epaladin 12y ago
I'm currently working in science, and ultimately interested in science and entrepreneurship. I don't have a PhD yet, and the financial situation in science and with startups makes me pretty nervous. Is it feasible for someone without a finance/business background to jump to an IB/PE job for a few years? I just want to feel more financially settled, before moving on with other things. I'm not quite 30-something, and if it helps at all my microecon professor in college apparently called my parents to get them to convince me to major in econ (I must have been the only one in the class who cared).

64 points by a5seo 12y ago

Sorry to be a cynic, but: "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." Really, I don't think there will be too much hand wringing for these folks.

tootie 12y ago
It's not a matter of professional ethics, it's a matter of them making decisions in favor of their future employer to the detriment of their current one.
- uptown 12y ago
  Sounds like the revolving-door career path that many politicians follow.
  - spuiszis 12y ago
    It's exactly like that.
- Balgair 12y ago
  How is that different than just, you know, ethics?
  - tootie 12y ago
    It isn't, my point is just that the IBs don't give a shit about ethics if it profits them. Only when it costs them money.

lmg643 12y ago

The whole time I read this article, I could only think of PG's "The Submarine." http://paulgraham.com/submarine.html http://paulgraham.com/submarine.html This article describes a process that's being going on for decades, but manages to do so while imbuing a "drama" that only a headhunting firm could truly muster (or the guy who wrote the book selling for $299). It's true, that the pressures have ramped up over time as private equity becomes a monster approaching the size of the banks themselves. But at root, this article is about people in one great job, looking to go to another great job. News, indeed! Nice work to the press people who put this together.

JTon 12y ago
Just read The Submarine for the first time. For those who haven't, it's well worth it. Very enlightening. Still very relevant today seeing how it was written in 2006
- VonGuard 12y ago
  Journo here. Very, very true. PR runs most of the stories you see. They don't usually run the hard news, like disasters and such, but they often glom onto those things so after a day or two, it's hard to tell who's actually reporting, and who's just regurgitating, and who's being spoon fed bullshit. We could debate the many reasons for this fact, but suffice to say that there is A: a lot of money riding on getting such stories printed, and B: not enough time in the day or money to pay journalists to do the real work. This plays out in a couple ways. The most common form is where the PR firm is also representing a company that advertises in the outlet. The New York Times writing about suits was probably printed on a page next to an ad for Macy's. The editorial guys are not complicit, but it's become common for sales to make "intros" to editors at parties and such. It's gross, but common. Another way it plays out is that we get some amazing, long article with in-depth journalism that's just the best thing you've ever read. Then no one reads it because it's really long and doesn't have pretty pictures, so compared to the story linked next to it on the front page, it's basically a one or two day blip in the system, then it's forgotten. Meanwhile, that other story with a title like "Docker will revolutionize datacenters," or "Google Glass User Assaulted," are getting the same number of hits, and they took about 10 seconds to write, so as a journalist, it can be a bit frustrating to be beholden to "hits," rather than to "quality." Which, frankly, is what most journos are dealing with. Most outlets want quantity over quality. That means the writers tend not to understand what they're writing about, but rather, they're just flying over and giving a scouting report in a vain attempt to be first. The Wire got this soooo right in season 5. Beat reporters need to cover their beats. The smaller the beat, the better they should be able to cover it. If you have one reporter on programming only, you can really get the pulse of the industry, rather than just having your tech reporter check in every 3 months. Journalism remains broken, with many examples of great work being ignored in favor of "10 reasons Beiber is made of plastic, and what types of plastic those would be if he were made of them," stuff. How are we going to write about people places and events when those people places and events are writing about themselves for free.

rayiner 12y ago

This situation is always painted as a "prisoner's dilemma" because otherwise talking about coordinating with regards to hiring smacks of anti-competitive collusion. However, I don't think the timeline is, on the net, disadvantageous to recruits. It's hard to argue that folks on a two-year contract at a bank are somehow disadvantaged by being able to line up their next gig a year or more in advance. It's also hard to ignore the fact that the long lead time gives recruits a lot more margin for error, because they get to make a run at private-equity well before their contract runs out at a bank.

foobarqux 12y ago
It's disadvantageous because the banks fire them if they find out, usually after simply asking them.
jessriedel 12y ago
I'm not so sure. The high-energy physics community created an ethically (but not legally) binding agreement on the date of theorist postdoc offers to prevent a useless race for ever earlier commit dates. >In recent years, we have seen a growing number of early offers with short deadlines for high energy theory postdoctoral positions...We are worried that this practice is preventing young researchers from making a free and fair choice among their job opportunities. And, while there may be some short term advantage for the institutions which do this, we believe it will have serious negative effects in the long run....Thus, we commit to make no postdoctoral offer for the fall of a given year, whose deadline for acceptance is earlier than January 7th of that year. http://insti.physics.sunysb.edu/itp/postdoc-agreement.html http://insti.physics.sunysb.edu/itp/postdoc-agreement.html I think all the postdoc applicants generally like this, so it does seem to be in their best interests. It's very plausible that various private companies have a harder time than HEP professors coordinating on a pledge like this given legal restrictions and the fact that they do not have the common framework of academia. So I think this really could be a prisoner's dilemma.
- rayiner 12y ago
  There was a similar agreement among federal judges for the hiring of term clerks. There was much gnashing of teeth when the plan broke down, and judges started hiring two years in advance. But I don't think there is any real prisoner's dilemma. What do the candidates lose? It's great to have a job lined up that far in advance. It lets you plan, especially if you have a family. Its obviously more burdensome for judges that way, but if they didn't think it was worth it to break the plan, they wouldn't have!

michaelochurch 12y ago

I think it's important to dispel a certain myth about this sector of finance. Around and past an IQ of about 135, work boredom is a chronic risk and sometimes a disability. If you're in this set, entry-level banking ("analyst" programs) and private equity aren't where you want to go. Past 135 (much less at 140, 150, or even 160) even 8 hours per day of grunt work is impossible, much less 17. There are plenty of 135+ in finance, but either they go for trading and quant or even IT roles, or they move to "the soft side" at a higher level: usually at least VP. So, yes, these people are above average in talent, but they're not "the most talented" in our generation. Depending on bonuses, they're not even the best paid. Oh, and they're the ones who go on to become VCs (not you, programmers, despite your superior talent). The 23-year-olds making half a million in private equity do exist, but they're (a) uncommon, and (b) not especially smart, just connected and unusually able (top 1%) to grind out hours. If you want to become a Master of the Universe, the optimal IQ is probably in the low-mid 120s: enough that you can build something in Excel, but not near the level that brings boredom or anti-authority risk.

deleted 12y ago
[deleted]
peterjancelis 12y ago
You're over-thinking the IQ part. And I know some 20-somethings making $500K and more for PE megafunds. There are some guys from middle class backgrounds there. The connected-but-useless ones tend to get hired in investment banking.
foobarqux 12y ago
Plenty of high IQ people in PE and hedge funds, especially those who entered direct from college, skipping IB. They seem to be people who can tolerate grinding though. It may be true that the work gets boring but the alternatives aren't significantly better (how many people at Google are doing substantially more interesting work?) and pay and career advancement are much better.
- crapshoot101 12y ago

MaxScheiber 12y ago

One reason that you see this sort of behavior in the first place is that very few people are able to successfully become lifetime bankers. The skillset required to be an excellent investment banking analyst is extremely different than the skillset needed to be an investment banking vice-president (or higher). Modeling skills and pitchbook formatting knowledge will do little for you if your job is to try to bring business to your bank. Analysts know that the internal track will end at the associate level (or, more likely, they'd be booted out after two years with no internal promotion to associate at all). Therefore, it makes sense for them to jump ship, and the subsequent prisoner's dilemma also makes sense. What's interesting is that a similar thing happens after two years as a private equity associate, in that almost all PE associates are booted out after two years, being told that they don't have the skillset to be promoted within the shop. At this point, I believe that many employees move onto internal corporate development, but my knowledge here is pretty incomplete about what happens after that break in the track. ("Greatness", perhaps?[0]) [0] http://www.leveragedsellout.com/2007/07/breaks-in-the-track http://www.leveragedsellout.com/2007/07/breaks-in-the-track

spuiszis 12y ago
> Analysts know that the internal track will end at the associate level (or, more likely, they'd be booted out after two years with no internal promotion to associate at all) > What's interesting is that a similar thing happens after two years as a private equity associate, in that almost all PE associates are booted out after two years Many PE shops, VC funds and banks do this because they want you to get an MBA. This is why many of the associate hiring positions are described as pre-MBA associate and post-MBA associate. Post-MBA associates are the ones that will go onto internal promotions and potentially the partner track.

mr_doobey22 12y ago

I can't speak for the PE side, but on the IB side be prepared to work with some truly awful tech and systems. Seriously crappy. Given the tech budgets and spend, it is amazing how much duct tape and band-aids hold together the IT systems across the bank.

dworin 12y ago
Someone in IT at a large bulge-bracket bank once told me that the reason tech was so shoddy despite the amount they spent was because by the time they did something the "right" way, the market opportunity was gone, or regulations changed and the old rules didn't apply anymore. So fast was much more important than good.
blibble 12y ago
I think it really matters which part of a bank you end up in... I've heard some horror stories about back office roles, but I work on a front office trading system and it's the most technically challenging, interesting and plain old geeky role I've ever had.
- X4 12y ago
  how did you get in?
pling 12y ago
And if you think that's bad, you want to see the insurance sector! Data loss is good for insurance businesses in the long run...

hacknat 12y ago

The Epicurean Dealmaker's thoughts (he's an MD for some big shot bank): http://epicureandealmaker.blogspot.com/2014/07/you-go-first.html http://epicureandealmaker.blogspot.com/2014/07/you-go-first....

MaxScheiber 12y ago
"The solution to this dilemma, of course, is simple. Private equity firms have become large and rich enough that they should do their own damn recruiting at colleges to hire junior personnel." This is already the case, at least at Wharton. A number of the PE megafunds recruit undergraduates here, specifically Blackstone and Silver Lake. I only really know of one or two offers being extended per year, but that's because private equity shops simply have fewer entry-level positions -- they can therefore afford to be picky. I'm sure that PE middle-market companies also recruit here (my knowledge here is more limited, as I gravitate toward the technology portion of my education rather than the finance portion), but it seems likely that students would take a bulge-bracket investment bank over a middle-market PE shop. It's simple supply and demand.
- hacknat 12y ago
  Interesting, thanks for the feedback. It's good to hear the other side of the story.

bfwi 12y ago

This article talks about a lot of things these firms do to attract talent. What about just offering more money?

patmcguire 12y ago
PE does. But only for some, it's anti-scalable. This is a nice little trick - if you only accept 2% of a highly competent applicant pool, you must hire the best, right? Eh, maybe, but you could just get everyone to apply and make the same decisions. Now you've got brand and people give you money... It's intentionally a ludicrous amount to suggest that they're Just. That. Good. to all their potential clients. But we can't all be payed three times going wage, can we?

epaladin 12y ago

I'm currently working in science, and ultimately interested in science and entrepreneurship. I don't have a PhD yet, and the financial situation in science and with startups makes me pretty nervous. Is it feasible for someone without a finance/business background to jump to an IB/PE job for a few years? I just want to feel more financially settled, before moving on with other things. I'm not quite 30-something, and if it helps at all my microecon professor in college apparently called my parents to get them to convince me to major in econ (I must have been the only one in the class who cared).