Investment banks, increasingly, want to see evidence of commitment and a passion for the sector from their junior recruits, and it’s no wonder – many young bankers view it as the perfect training ground for a more lucrative, and easier, life working in private equity.
However, if you thought it was tough getting into investment banking, making the switch to private equity is arguably more competitive. For every available junior role, there are 200-300 applications, largely from analysts and associates at bulge bracket banks, according to Gail McManus, chief executive and founder of Private Equity Recruitment.
“Every year, I thank the investment banks for providing a huge pool of candidates for the junior private equity roles we have,” she says. “It’s become an ever-more common route for investment bankers to make the switch after a couple of years top-class training.”
2013 in particular was a banner year for the private equity industry, with firms expected to return a record $120bn to investors, according to estimates from Cambridge Associates. Meanwhile, investment banks have continued to struggle in a year when revenues in their fixed income commodities and currencies divisions slipped by 18% year on year.
Hartley Rogers, CEO of private equity firm Hartley Lane said that any junior analyst should now be viewing investment banking as a short-term career booster: “My primary message to young people is get the foundation… but then don’t stay. I think businesses get too big, and when they get too big they aren’t as good. And it’s true look at Wall Street… Morgan Stanley’s not the same place it was even 15 or 20 years ago. Goldman Sachs — not the same place. The big banks aren’t the same places.”
There’s obviously a vested interest for him to be promoting private equity as a career over investment banking, but McManus agrees that those entering the banking sector are doing so with one eye on what to do next, and private equity is an attractive option.
Of the 200-300 applications, around 20 make it on to the shortlist, and generally those receiving an offer will be able to juggle multiple firms trying to hire them, says McManus.
“It’s not just bulge bracket experience – it’s about thinking like a buyer,” she says. “You can have two people from the same team who view deals entirely differently. One will think of, say, an expanding retailer as being ripe for an IPO, while another will ask the questions about what the long-term potential of the firm is, and are generally a little more cynical about growth prospects. It’s the latter type of person a private equity firm will hire.”
Associates in private equity can haul in $152k in the U.S. and Europe on average, according to figures from Preqin, but this rises to $1.34m at the senior end. Private equity compensation models, where the majority of income is earned through carried interest, are not being cracked down upon by regulators like those in investment banking.
One university student, who secured a job at Deutsche Bank in 2014 after an internship last year, tells us that the investment banks are trying to paint a picture of the industry as one that offers long-term career prospects to their junior recruits. However, a lot of students were viewing either the internship as a CV booster, or the eventual job offer as a stepping stone into other parts of the financial sector. As we’ve mentioned previously, starting out in a bulge bracket bank is the best way to open up a broad range of career options.
McManus warns that junior investment bankers should expect some degree of failure; something most are unaccustomed to. “There’s some degree of intangibility about who gets the job. Often it’s someone with the right blend of confidence, personality and experience, but never arrogance. Most don’t make it through, and when you’re used to being the best in your school, captain of the football team or, in some cases, Olympic athletes, this can be difficult to swallow.”