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Tapping i-bank talent

Plenty of investment bankers may be looking to move into private equity these days, but not every banker is equipped for the transition. Here are some guidelines in evaluating who's best suited to switch sides.

Chris Conti is a Partner with the executive search firm of CTPartners. He can be reached at 216-682-3129 or cconti@ctnet.com.

For financial service firms, marketplace conditions inevitably produce swings in talent demand and hiring opportunities. That rule translates, these days, into exceptional recruitment opportunities for private equity firms. Flush with both capital and investment prospects on a global basis, the time is ripe for these firms to enhance their rosters with top-quality, seasoned investment banking professionals as much of Wall Street struggles with a host of subprime-mortgage-related challenges.

What's the best way to source and qualify this talent? That's a complex question, despite the fact that private equity typically has looked to investment banking as a pipeline, especially for professionals who can create and manage new deals. As a search professional specializing in this space, I would argue that current Wall Street conditions create recruitment risks for private equity firms, as well as great opportunities.

You've got to kiss a lot of frogs to find the best candidate to make this kind of switch.

Given the current conditions on Wall Street, private equity firms need to be hypersensitive when considering the growing number of candidates who seek to migrate from investment banking. The objective is to identify professionals who can succeed in all types of markets, rather than simply doing well when times are good.

But such candidates must also be capable of succeeding within environments that are usually very different from the ones in which they previously have worked. I would also add this: These candidates need to be prepared for a very different type of business culture and truly ?buy into it,? rather than simply being interested in making the move because their current employer is downsizing or they are worried about this year's bonus.

The smooth switch
After all, a successful transition from investment banking to private equity is not guaranteed. Consider a top-quality performer at, say, Goldman Sachs. Throughout his career, this person has been supported by a global ?machine,? with an in-depth infrastructure and plenty of support at all levels. It will be easiest for this professional to transition to one of the largest and most successful global PE firms, since these possess the deal flow and the reputation upon which this person will know how to build.

But what about all those other private equity firms that might be eager to hire a candidate like this one? Well, despite this person's blue-chip credentials, it's far from certain whether every Goldman Sachs veteran will succeed in a situation in which deal flow must be independently sourced, regardless of the name on a firm's door. Can this professional deliver at a smaller shop ? or maybe even a mid-cap shop ? without the benefit of a large employer's rolodex, infrastructure, and all those favors owed to colleagues?

So, issue number one when sourcing investment banking talent is to determine how creative potential candidates previously have shown themselves to be, even without big muscle behind them. Determining this requires exhaustive analysis of a professional's deal flow, prior activities and achievements.

As my colleagues and I at CTPartners like to say: Verify, verify, verify. When analyzing an investment banker's track record for a potential move into private equity, exhaustive referencing is essential. Fortunately, most PE firms understand this and are prepared to commit to a referencing process that puts even the most successful global corporations to shame. With so much money at stake, they will do everything they can to avoid the wrong hire.

Dig deep
The goal is to dig into references as deeply as possible, and this can usually best be done through a ?blended? process that combines the search partner's contacts with those of the PE firm. Third-party vendors, such as management consulting firms, may also have the reach to be able to contribute insights into a candidate's personality, prior activities, or independent achievements.

You've got to kiss a lot of frogs to find the best candidate to make this kind of switch. During one recent search, I worked closely with a PE firm that had an interest in a particular subsection of the financial services industry in which they wanted to develop investments. Their goal was to hire professionals with experience in this subsector and, of course, to focus the search on those people who could demonstrate success throughout multiple business cycles.

But that's where things can get complicated, because when you're considering a professional within this space who has been through multiple business cycles, you're probably looking at someone who already has made $20 million or more. As a search expert, I really put up my antenna in these situations, because what's necessary is an intense evaluation of any strong candidate. After all, if someone has already been through multiple business cycles and earned that kind of money, one could question how much hunger and drive the person still has.

Fish out of water
The right candidate also must fit smoothly into the PE firm's culture. While that's always a challenge, it's never more so than when a professional may be making the switch from investment banking to private equity. There are similarities between these two worlds, of course: Plenty of firms have clubby environments; they tend to favor graduates of HBS, Stanford, Wharton, and the like. But their company cultures vary widely. The right candidates can make the appropriate adjustment, whether it's to a ?kiss-the-ring? kind of senior management, or a team culture, or a ?workman-like? style.

In an environment like this one, with so many strong candidates looking to make the switch into private equity, there's just no excuse for failing to pay attention to this cultural connection. As my colleagues and I often emphasize, people get hired for their technical competency, but they get fired for their inability to mesh with the organization's culture.

There's another important factor worth mentioning: The PE world may be a sexy place to move into, but the hiring process there is atypical of the business world. These are partnerships with multiple powerful constituencies. Each has the proverbial ?black ball? which gives them the ability to pull the plug on a candidate, regardless of the opinion of their colleagues. That adds an increased level of complexity to this process, which means that recruiting for a senior PE spot is much more difficult than for, say, a management position at a large global firm. As a search professional, I go into one of these engagements prepared to carry out multiple shifts in strategy as needed. That's another reason why you must be absolutely exhaustive throughout the referencing process. You've got to know that a candidate is the real deal.

Only stars need apply
Here's a good example of why that's the case: I worked on a search during 2007 for one of the largest PE firms ? the kind of firm that doesn't need to take a chance on anyone. We got very serious and down the track with a well respected executive whose accomplishments spoke for themselves. That said, this was one of those PE firms that had the liberty and flexibility to be able to walk away from a candidate, without remorse, at the first sign of a marginal reference. Little did I know that ?marginal? could be interpreted as something as subtle as a reference coming back without including descriptors like ?exceptional? or ?star?. A reference characterizing someone as a ?good guy ? hard worker? was seen as marginal and was cause enough to walk away.

When I speak to investment banking candidates who are interested in jumping to PE in this environment, I often draw an analogy to applying to colleges. It's fine to set your sights on a so-called stretch school ? or PE employer ? but you also need some safeties. Everyone would like to receive an offer from Blackstone or KKR, but people need to be aware of their own strengths and weaknesses as candidates, and the realities of the current hiring environment.

That said, today's candidates do have another PE option that may be worth considering. A growing number of European private equity firms are setting up US operations. CVC Capital Partners, based in Luxembourg, and Intermediate Capital Group, headquartered in the UK, are good examples of newcomers. Others, like BC Partners, also UK-based, are in the midst of expanding US operations. Given the weakness of the dollar, these firms are in a strong position to grow profitably. And while the best-credentialed investment banking stars might not want to consider manning a satellite office, this might be an attractive option for other candidates.

Talent sourcing differs, of course, for each private equity firm, depending upon everything from their reputation to their capital base, investment niche, and worldwide reach. And even in a financial environment like this one, there always will be some professionals who cannot be budged, who are not motivated to make the move from investment banking to private equity.

Yet the pool is ample. I continue to believe that people from the toptier investment banking firms, with blue-chip credentials that include Ivy League degrees will naturally be the strongest candidates for the top-tier private equity firms for a long time to come. For every PE firm, however, my bottom line message is the same: Source carefully and creatively to insure that you are competing most effectively for the best talent. After all, the supply and demand imbalance with investment banks is tilted in your favor.