When financial behemoths go to war it’s talented young bankers that are the prize

A battle is raging on Wall Street as never before, with powerful factions scrambling for control of a precious resource. On one side are the giant investment banks, with names like Morgan Stanley and Goldman Sachs. Lined up against them, but warring among themselves, are the giants of private equity – Kohlberg Kravis Roberts, Apollo Global Management and the Blackstone Group, to name three. And the private-equity firms just happen to be the banks' clients.

The prize they are fighting for is young talent. This summer, dozens of junior bankers in their early to mid-20s will start jobs in private equity after spending their first two years out of college working at investment banks. Private-equity firms use billions of dollars of cash and plenty of debt to buy companies. They are seen by many young strivers as the next rung on an elite career ladder, promising higher status and more pay – about $300,000 (€220,000) a year including , salary and bonus, roughly double what a second-year banker might earn at Goldman.

For junior bankers, who are known as analysts, securing such a job means stepping into the middle of a Wall Street struggle that has intensified since the financial crisis. The whirlwind process of interviews, which this year started in February, far earlier than many in private equity had expected, requires analysts to sneak around and often miss work. It bears little resemblance to the orderly on-campus career fairs they attended in college.

“It is not a normal search process – that, certifiably, everyone would agree with,” said Adam Zoia, the chief executive of Glocap Search, one of the recruiting companies involved. Kira Yugay (29), who worked at the Greenbriar Equity Group, a private-equity firm, after three years at Citigroup, said: “You may be called into an interview two days in advance, a day in advance or an hour in advance. And you have to be there.”

The manoeuvring reflects changes on Wall Street since the 2008 crisis. The banks, burdened by new regulations and haunted by negative publicity, are taking unusual steps to try to preserve their appeal for ambitious graduates. Many have promised analysts more time off. Some have extended their employment contracts beyond the two-year agreements that had been the norm.

The private-equity firms, meanwhile, have grown stronger, benefiting from low interest rates and a buoyant stock market. They have raised huge new funds and expanded into new businesses, requiring additional workers. To recruit talent today, private-equity firms make offers as long as 18 months before a job begins.

This timing is repellent to many bank executives, not only because their workers are being poached. 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. Goldman Sachs, for example, requires junior workers to resign soon after accepting a job at a private-equity firm. Such a rule is at odds with private equity’s recruiting timeline, leaving many junior bankers to ignore it. And the recruiting process, despite a recent attempt to change it, has grown only more frenzied.

Morning interview

One Thursday night last February, a handful of investment bank analysts saw their mobile phones light up. Amity Search Partners, a major recruiter, told the analysts to prepare to be interviewed the next morning for jobs that would start next year.

Already, these analysts – fresh graduates of elite universities who were only about six months into their first jobs on Wall Street – had attended cocktail events and breakfasts sponsored by private-equity firms. But now it had emerged that smaller firms were already interviewing.

So one of the biggest players in private equity, Apollo Global Management, which had hired Amity, was quietly taking its own process to the next level, weeks earlier than its rivals had expected. (Representatives of Apollo and Amity declined to comment.)

Word spread quickly, sending other recruiters into strategy sessions that stretched into the wee hours. Recruiters are often paid fees equivalent to about a third of the first-year compensation of workers they place. One private-equity firm, Silver Lake, scrambled to set up interviews for that afternoon. Kohlberg Kravis Roberts scheduled interviews for that Saturday. Bain Capital, which had planned a preliminary event for Friday evening, received a number of cancellations from analysts already interviewing elsewhere.

The machine was in motion – a situation that made hardly anyone happy. “It’s this terrible prisoner’s dilemma,” said Daniel Sheyner, a former associate at Bain Capital. He was referring to a situation in game theory where players would be best served by coordinating their actions but, lacking information about what the others will do, are instead motivated to act according to their individual self-interest.

“It’s bad for the candidates because they have to make decisions really early,” Sheyner said. “It’s really bad for the banks. They just hired those people a few months ago. And it’s bad for private equity because they don’t have a track record to go on.”

Sheyner (31), who graduated in May from Harvard Business School, has turned this tricky situation into a business opportunity. He recently completed an exhaustive guide to the private-equity recruiting process, including sample interview questions and financial modelling tests. This e-book package, released in May by Wall Street Oasis, an online forum for finance workers, costs $299. Hundreds of copies have already been sold.

Wall Street has tried before to bring some order to private-equity recruiting. The six major private-equity firms, after years of interviewing candidates far in advance, decided two years ago to wait. The companies – Apollo, Bain, KKR, the Blackstone Group, TPG and the Carlyle Group – all chose to wait until January 2013 to recruit the workers who would start that summer, according to two people with direct knowledge of the situation, who would discuss private business matters only on condition of anonymity. But the detente soon fell apart. Smaller private-equity firms had done their recruiting on the earlier schedule. The giants grew concerned that they might be missing out on the most desirable candidates.

‘You fools’

“Everyone else said, ‘Ha-ha, you fools, we’re going to grab all the good talent before then,’” Zoia said. In April 2013, the six biggest companies returned to their early schedules, and the next cycle began, with junior bankers getting offers to start this summer. For aspiring Masters of the Universe, private equity seems more attractive than ever. The soaring stock market last year allowed firms to reap large profits by selling holdings, and top executives took home eye-popping sums. Leon D Black, the chief executive of Apollo, earned a total of $546.3 million.

On the back of its success, Apollo raised a fresh $18.4 billion fund to buy more companies. With ambitious plans, it needed more junior workers and those workers could be found at the banks.

The Wall Street career path once went like this: Spend two years in basic training at an investment bank after college, head to a private-equity firm for investing experience, go to graduate business school, and then back to Wall Street or on to another career.

But the power balance in the job market has shifted, as investment banks have had to reduce risky activities and sectors like technology promise jobs with generous benefits. One-fourth of the 2013 undergraduate class of the Wharton School of the University of Pennsylvania took jobs in investment banking, according to the school's career services office. In 2007, before the crisis, almost half of that year's class went that route.

Many banks, trying to stay competitive, have recently instructed their junior workers, often known for working 80-hour weeks, to take a few weekend days off a month. In the hard-charging world of Wall Street, such a policy amounts to a radical shift in culture. Some young employees, however, are unimpressed by the attempt to improve their working conditions.

‘Other opportunities’

“The investment banks are just not nearly as popular as they were,” said Peter Cappelli, a management professor at Wharton. Undergraduates “don’t feel the jobs are worth it,” he said. “They’ve got other opportunities.”

The banks don’t see it that way. In the past few years, a number have emphasised the opportunities to be had by staying put. JPMorgan Chase and Deutsche Bank recently dispensed with two-year contracts and hired analysts for three years instead. Goldman Sachs went further. Analysts who started last year were hired as full-fledged employees, with the expectation that they would “want to be here for a career,” as David M Solomon, its co-head of investment banking, put it.

Such policies have pushed recruiting further into the shadows. At Goldman, analysts whisper about the time in 2012 when the firm cracked down. That year, certain analysts, whom Goldman believed had job offers from private-equity firms or hedge funds, were pulled into conference rooms and asked, point blank, about their employment plans, according to an analyst in that class and another person briefed on the matter. “The majority of us lied,” the analyst said, insisting on anonymity so as not to damage his relationship with Goldman.

Goldman ended up dismissing several analysts who acknowledged they had accepted offers, sending ripples of anxiety through Wall Street’s junior ranks. The financial gossip blog Dealbreaker ran a post with the headline, “Goldman Sachs Does Not Look Kindly Upon First Year Analysts Who Plan In Advance.”

Some analysts, however, are looking to leave Wall Street altogether. Linda Lian, a former Morgan Stanley analyst, interviewed with private-equity firms last year. The process made her realise that she was not passionate about the business of buying companies and trying to revamp them. She recalled one interview in particular.

"I just remember speaking to one of the partners, and being interviewed by her, and realizing I didn't want her life," said Lian (24), who graduated from Harvard in 2012. She now works in finance and business development for a mobile phone security company in San Francisco.

“Working at a private-equity fund was going to be like Banking 2.0,” she said. “Eventually, I just realised I simply didn’t want it.” Of the recruiting process, she said, “It’s not really so much a process as a feeding frenzy, with banks, headhunters and private-equity funds all caring about their own interests. When all this starts happening, you have no choice, really, not to engage with it. If you don’t, there’s so much peer pressure around you, and you feel you’re missing out on opportunities.”

– (Copyright the New York Times service 2014)