US private equity firms search for “pre-MBA hires” used to at its very earliest begin in May. Then it was April. Then last year Bain Capital reportedly started the process of holding interviews and making offers in early March.
This year, according to multiple sources, a number of US mid-market firms and hedge funds (in a departure from large-cap buyout firms’ traditional first dip in the talent pool) have taken it as far back as February. Let that sink in for a moment: some GPs are wooing candidates just months after obtaining their undergraduate degree.
Typically what happens is college graduates complete a two-year stint at an investment bank or consultancy firm before signing away another two years of their life to the more prestigious world of private equity – from that point most go off to business school and reenter the private equity world or somewhere else as a “post-MBA hire”.
But it is during their time on Wall Street many learn how to build financial models, value companies and hone other skills needed for a successful career in buyouts. The work is no doubt intensive and comes with a learning curve – especially so for those analysts completing their “two and out” on Wall Street without an undergraduate degree in finance.
All this suggests a gamble on the part of those firms moving ahead of the pack in the normal recruiting season. It means candidates are being assessed largely on their academic history, with only a few months of real work experience. This makes it virtually impossible to judge their credentials as a junior-level associate in private equity.
In fact, multiple industry sources say US large-cap firms have recognised this much by conceding the pick of the litter to the mid-market and hedge fund arena this year around. In an internet forum where pre-MBA interviewees exchange strategy and advice on the recruitment process, one recent recruit even described the situation last year as megafunds “being pretty pissed off about having to give offers to pimply faced 20 year olds that had absolutely no experience to talk to.”
Really no one wins in this scenario. It’s bad for first year analysts who must juggle the stresses of a new job with a series of interviews and pitches from private equity firms. And a fair percentage of candidates early in their careers are not yet even able to draw clear distinctions between, for example, the private equity and hedge fund industries, sources said, but are being asked to make a serious commitment to one or the other.
It’s bad for the investment banks that would prefer not to have their young analysts distracted by the demands of their future employers. And it is bad for the private equity industry in general as more and more firms are compelled to sign unrefined talent in fear that the competition will grab them first.
GPs would do themselves (and others) a favour by giving analysts at least a year to find their way on Wall Street before judging who’s best in class. At that time banks should have available year-end performance reviews and bonus numbers for GPs to chew over. And for some best practice guidelines in recruiting today’s crop of talent, be sure to check out the May edition of PE Manager. In it we discuss that some firms seemed to have already gotten the message that patience is a virtue.