By Kyle Stock

Another sign that heady days are back on Wall Street: Private-equity firms are raiding investment banks for relatively inexperienced analysts. Buyout companies have long poached hires from two-year analyst programs at bulge-bracket banks. This year, the hiring is occurring more rapidly, according to private-equity and investment-bank recruiters. Candidates are being snapped up less than a year after graduating from college.

Compensation is also up. Recent offers guarantee $220,000 to $250,000 a year, though the most coveted workers are getting more than $300,000, said Jessica Hersch, who targets bank analysts for private-equity clients of Glocap Search, a New York-based headhunting firm. “It’s a domino effect every year and this was a very intense year,” Hersch said. In investing terms, private-equity firms are taking a very long position on an asset class with a very short record of performance.

The alternative, however, is missing out on tireless, young finance machines in a period when the global buyout sector is trying to deploy nearly $540 billion in cash, according to industry research firm Preqin Ltd. Investing that much money means screening many potential target companies, which, in turn, means bringing to bear a small army of workers to crunch financial models and hammer out due diligence.

In 2009, many private-equity firms waited until September to make offers for jobs that would start about 12 months later. Last year, they started sending offer letters in mid-summer. This spring, the rush started March 3, according to Jeannine Santarelli head of associate recruiting at The Carlyle Group.

Within two weeks, the top candidates were spoken for, including the 16 analysts that Carlyle signed on to start in August 2012. “It’s not in the bank’s best interest, it’s not in private-equity’s best interest and it’s certainly not in the best interest of the analysts,” Santarelli said of the accelerated recruiting. “But once someone pushes the button, we have to go, because we can’t risk losing out on the best and brightest.”

Easy Sell

Private-equity firms focus on a pool of 1,000 to 1,500 analysts at Wall Street’s big investment banks, according to Scott Rostan, whose Wall Street preparation company Training the Street will break in close to 12,000 banking analysts this summer. Generally, about 5% to 10% of those candidates get offers from buyout firms. Junior analysts are the foot-soldiers of finance. While their bosses are wining and dining captains of industry, analysts tweak Powerpoints and crunch Excel simulations into the early morning hours.

Geoff Robinson, who will train about 1,300 bank analysts this summer for 7City Learning, said rookie bankers are “bled dry” in the course of their two-year posting. He recalled bumping into two haggard analysts at a London hotel just months after he had trained them.

“These guys were 24-years-old and both looked like they were in their early 30s,” Robinson said. “I was shocked.”
The chance to jump to the buyout industry, which, on a whole, offers slightly better hours and much more compensation, is fairly attractive. Scores of analysts are spending $300 to $1,000 for one-on-one coaching on how to ace a private-equity interview, according to Training the Street. Trevor Nelson, the company’s lead private-equity instructor, has had about 50 requests for such “bespoke” guidance this year to date, up from 35 last year. “We saw the demand get compressed into what you might call a stampede back in March,” Nelson said.

Bad blood

Senior investment bankers understand that the hiring is part of the free market and do not want to rebuff private-equity firms, which count as some of their most lucrative clients. The recent rush to recruit, however, is starting to spark friction on Wall Street. A number of firms, including Barclays, Deutsche and Morgan Stanley, declined to comment for this piece.
A former Bank of America analyst we spoke with who asked not to be named said his boss was “particularly sensitive” to outside recruiting. “If you wanted to interview, you kind of had to sneak out the door with a folder under your jacket,” he said. “So, that’s what a lot of us did.”

The candidate eventually joined Lightyear Capital, a New York-based private equity firm, but did not tell his boss until a few months later when the firm was weighing extension offers. Recruiters said a few investment banks have moved to stem brain-drain. At least one senior managing director at a bulge-bracket bank sent a letter to private-equity recruiters last year urging them to wait until the greenhorn analysts had a few more months under their belts, according to a recruiter who spoke on the condition of anonymity for fear of angering a potential client.

Now, some banks are “signaling” to high performers that they will likely be promoted to associate at the end of their initial two-year period or at least get an offer to stay on for a third year, according to Rostan at Training the Street.
Still, banks struggle with “a big disconnect” between when their top analysts are hired away and when they know which of the rookies are “keepers. “To me, it’s a sign of the overall bullishness,” Rostan said. “Private equity is getting its swagger back.”