Find a link to Paul Clarke's original article on eFinancialCareers here.
Private equity is all about aspiration. Most investment bankers covet a buy-side role early on in their career, but only a very select few make it in.
“We have 2,500 applications every month,” says Gail McManus, managing director of PER, Private Equity Recruitment. “We place 200 people a year.”
In other words, even if you’re among the 2-4% of applicants who end up in a front office banking job, there’s still just then a 0.7% chance of getting into private equity.
“If you’re interviewing for a private equity job, there are likely to be another 100 people who made the shortlist,” says Gail McManus.
Junior bankers have started to get creative break into the buy-side. This year, they’ve been targeting smaller private equity firms or VC funds, or have moved into areas like direct lending or distressed lending funds to make the switch.
But it’s the big private equity companies that remain the most desirable. Blackstone Partners is the PE firm that most finance professionals want to work for, according to the 2017 eFinancialCareers Ideal Employer rankings. KKR and The Carlyle Group took second and third places respectively in this year’s rankings.
Aside from (slightly) better work-life balance than investment banking, private equity firms have one key thing going for them – carried interest. This is the share of any profits a manager receives, which usually benefits the most senior staff at the firm. However, now that most big private equity firms have both analyst and associate recruitment programmes, it’s becoming increasing common to offer carry to even the most junior ranks.
The appeal of big earning power in private equity is reflected in our rankings. 85% of people who voted for Blackstone believe that a competitive salary is on offer, and 87% would want it if they went to work for them. 81% also anticipate a big bonus, and 89% of respondents said it was important to them.
A higher proportion of people who voted for Goldman Sachs expected a large salary than at any other investment bank, but this was 82%, while 76% want a competitive bonus.
Analyst pay in private equity averages out at $114k on average in the U.S, according to figures from Preqin. This is on a par with junior pay in banking, but it’s later on when the buy-side starts to pull ahead on pay. Managing directors/partners can earn $3.3m in carried interest alone, the Preqin figures suggest, compared to around $1.1m in total compensation for a managing director in investment banking.
Private equity firms have become warier of potential recruits just chasing a big pay day, however. Terra Firma founder Guy Hands said recently that they’d cut graduate salaries by 50% and eliminated bonuses, in order to dissuade the sort of applicants that might also be looking for high salaries at investment banks. The sweetener, however, was that the firm would pay for a deposit on a house in London if the new recruits lasted five years.
Perhaps it’s also the nature of the work that appeals to people who want to work in private equity. 75% of respondents who voted for Blackstone said challenging and interesting work was a strength of the firm, and 86% said it was important to them. This is higher than all the top banks in our ranking – 70% of those who chose J.P. Morgan expected the same, for example. It also only just lagged the ever-innovative Google, which had 77% of voters saying interesting work was a reason they wanted to work there.
“The whole concept of being the person who invests in something and helps it grow is an appealing aspect of the job, and not something many young people get to experience,” says McManus. “It takes judgement, technical skill and responsibility – and it’s hard. This is the reason so many people fail to make the cut.”
It also helps that while investment banks are trigger happy, private equity firms rarely fire people in large numbers. Their investment teams remain relatively small – typically around 30 people in regional teams, even in a large private equity firm – and they’re seen as stable employers. 74% of those who voted for Blackstone said financial performance of the firm was a strength. Again, this was higher than all the top investment banks in our ranking.
Still, private equity firms also had the same weaknesses as investment banks. Just 9% of people who chose KKR said they expected manageable working hours, 16% of Blackstone voters and 13% of those who named The Carlyle Group as their employer of choice said the same.
Similarly, private equity firms might be seen as challenging places to work, but they’re not perceived as being innovative. 37% of Carlyle Group voters, and 45% of those who chose KKR said that the firms were innovators. Blackstone led the group here, with 52% of voters saying they thought the firm was an innovator in the industry.
Private equity firms might not be short of applicants, but there’s still a mismatch between candidate desires and what they believe the buy-side can offer. 39% of people who chose Blackstone said decent working hours were important to them, and 27% of KKR voters said the same. Similarly, 64% of Blackstone respondents said they’d like to work for an innovative company. 65% of KKR voters and 69% who chose Carlyle Group also said this.
The growing appeal of sovereign wealth funds
Sovereign wealth funds (SWFs) get a bad press. They’re seen as overly-bureaucratic, poor payers and are often located in parts of the world far away from major financial centres. Yet, one of the big trends in our private equity rankings this year is the growing appeal of SWFs. GIC, the government of Singapore’s sovereign wealth fund, ranked fourth this year. But Temasek, another Singapore SWF, and the Abu Dhabi Investment Authority (ADIA) also made the top 10.
People who voted for these firms remain realistic about what they can expect by working there, however. At GIC, for example, just 65% of people said they anticipated a big salary by working for the sovereign wealth fund, and 57% said they expected a competitive bonus. One of the big appeals of these organisations is simply that they have large investment teams and continue to search in London and New York for the investment talent they need. ADIA, for example, has around 1,700 people employed globally and Temasek has a headcount of 530. Considering the competitive nature of private equity jobs, maybe this is enough.
By Paul Clarke, eFinancialCareers