
Wall Street Banks and Private Equity Firms Compete for Young Talent - a5seo
http://www.nytimes.com/2014/07/06/business/wall-street-banks-and-private-equity-firms-compete-for-young-talent.html
======
MaxScheiber
One reason that you see this sort of behavior in the first place is that very
few people are able to successfully become lifetime bankers. The skillset
required to be an excellent investment banking analyst is extremely different
than the skillset needed to be an investment banking vice-president (or
higher). Modeling skills and pitchbook formatting knowledge will do little for
you if your job is to try to bring business to your bank. Analysts know that
the internal track will end at the associate level (or, more likely, they'd be
booted out after two years with no internal promotion to associate at all).
Therefore, it makes sense for them to jump ship, and the subsequent prisoner's
dilemma also makes sense.

What's interesting is that a similar thing happens after two years as a
private equity associate, in that almost all PE associates are booted out
after two years, being told that they don't have the skillset to be promoted
within the shop. At this point, I believe that many employees move onto
internal corporate development, but my knowledge here is pretty incomplete
about what happens after that break in the track. ("Greatness", perhaps?[0])

[0] [http://www.leveragedsellout.com/2007/07/breaks-in-the-
track](http://www.leveragedsellout.com/2007/07/breaks-in-the-track)

~~~
spuiszis
> Analysts know that the internal track will end at the associate level (or,
> more likely, they'd be booted out after two years with no internal promotion
> to associate at all) > What's interesting is that a similar thing happens
> after two years as a private equity associate, in that almost all PE
> associates are booted out after two years

Many PE shops, VC funds and banks do this because they want you to get an MBA.
This is why many of the associate hiring positions are described as pre-MBA
associate and post-MBA associate. Post-MBA associates are the ones that will
go onto internal promotions and potentially the partner track.

------
lmg643
The whole time I read this article, I could only think of PG's "The
Submarine."

[http://paulgraham.com/submarine.html](http://paulgraham.com/submarine.html)

This article describes a process that's being going on for decades, but
manages to do so while imbuing a "drama" that only a headhunting firm could
truly muster (or the guy who wrote the book selling for $299).

It's true, that the pressures have ramped up over time as private equity
becomes a monster approaching the size of the banks themselves.

But at root, this article is about people in one great job, looking to go to
another great job. News, indeed! Nice work to the press people who put this
together.

~~~
JTon
Just read The Submarine for the first time. For those who haven't, it's well
worth it. Very enlightening. Still very relevant today seeing how it was
written in 2006

~~~
VonGuard
Journo here. Very, very true. PR runs most of the stories you see. They don't
usually run the hard news, like disasters and such, but they often glom onto
those things so after a day or two, it's hard to tell who's actually
reporting, and who's just regurgitating, and who's being spoon fed bullshit.

We could debate the many reasons for this fact, but suffice to say that there
is A: a lot of money riding on getting such stories printed, and B: not enough
time in the day or money to pay journalists to do the real work.

This plays out in a couple ways. The most common form is where the PR firm is
also representing a company that advertises in the outlet. The New York Times
writing about suits was probably printed on a page next to an ad for Macy's.
The editorial guys are not complicit, but it's become common for sales to make
"intros" to editors at parties and such. It's gross, but common.

Another way it plays out is that we get some amazing, long article with in-
depth journalism that's just the best thing you've ever read. Then no one
reads it because it's really long and doesn't have pretty pictures, so
compared to the story linked next to it on the front page, it's basically a
one or two day blip in the system, then it's forgotten. Meanwhile, that other
story with a title like "Docker will revolutionize datacenters," or "Google
Glass User Assaulted," are getting the same number of hits, and they took
about 10 seconds to write, so as a journalist, it can be a bit frustrating to
be beholden to "hits," rather than to "quality."

Which, frankly, is what most journos are dealing with. Most outlets want
quantity over quality. That means the writers tend not to understand what
they're writing about, but rather, they're just flying over and giving a
scouting report in a vain attempt to be first.

The Wire got this soooo right in season 5. Beat reporters need to cover their
beats. The smaller the beat, the better they should be able to cover it. If
you have one reporter on programming only, you can really get the pulse of the
industry, rather than just having your tech reporter check in every 3 months.

Journalism remains broken, with many examples of great work being ignored in
favor of "10 reasons Beiber is made of plastic, and what types of plastic
those would be if he were made of them," stuff. How are we going to write
about people places and events when those people places and events are writing
about themselves for free.

------
mr_doobey22
I can't speak for the PE side, but on the IB side be prepared to work with
some truly awful tech and systems. Seriously crappy. Given the tech budgets
and spend, it is amazing how much duct tape and band-aids hold together the IT
systems across the bank.

~~~
blibble
I think it really matters which part of a bank you end up in... I've heard
some horror stories about back office roles, but I work on a front office
trading system and it's the most technically challenging, interesting and
plain old geeky role I've ever had.

~~~
X4
how did you get in?

------
rayiner
This situation is always painted as a "prisoner's dilemma" because otherwise
talking about coordinating with regards to hiring smacks of anti-competitive
collusion. However, I don't think the timeline is, on the net, disadvantageous
to recruits. It's hard to argue that folks on a two-year contract at a bank
are somehow disadvantaged by being able to line up their next gig a year or
more in advance. It's also hard to ignore the fact that the long lead time
gives recruits a lot more margin for error, because they get to make a run at
private-equity well before their contract runs out at a bank.

~~~
jessriedel
I'm not so sure. The high-energy physics community created an ethically (but
not legally) binding agreement on the date of theorist postdoc offers to
prevent a useless race for ever earlier commit dates.

>In recent years, we have seen a growing number of early offers with short
deadlines for high energy theory postdoctoral positions...We are worried that
this practice is preventing young researchers from making a free and fair
choice among their job opportunities. And, while there may be some short term
advantage for the institutions which do this, we believe it will have serious
negative effects in the long run....Thus, we commit to make no postdoctoral
offer for the fall of a given year, whose deadline for acceptance is earlier
than January 7th of that year.

[http://insti.physics.sunysb.edu/itp/postdoc-
agreement.html](http://insti.physics.sunysb.edu/itp/postdoc-agreement.html)

I think all the postdoc applicants generally like this, so it does seem to be
in their best interests.

It's very plausible that various private companies have a harder time than HEP
professors coordinating on a pledge like this given legal restrictions and the
fact that they do not have the common framework of academia. So I think this
really could be a prisoner's dilemma.

~~~
rayiner
There was a similar agreement among federal judges for the hiring of term
clerks. There was much gnashing of teeth when the plan broke down, and judges
started hiring two years in advance. But I don't think there is any real
prisoner's dilemma. What do the candidates lose? It's great to have a job
lined up that far in advance. It lets you plan, especially if you have a
family. Its obviously more burdensome for judges that way, but if they didn't
think it was worth it to break the plan, they wouldn't have!

~~~
jessriedel
If it was beneficial to have the date earlier, then everyone could have just
agreed to an earlier date. The problem is that everyone wants a certain date,
but defecting employers can benefit by making early job offers with acceptance
windows that close before their competitors have made any offers; students are
risk adverse and so will accept the earlier offer rather than gamble that they
will get a later offer from a better employer.

Contrary to your intuition, most people do not want the inflexibility of
needing to decide on their next job 2 years ahead. For example, if you're a
young law student, you're still learning what kind of law you actually want to
work in, and it's very inconvenient to have to choose years ahead of time what
court you work in, at which point your academic (or love) interests may have
changed.

------
epaladin
I'm currently working in science, and ultimately interested in science and
entrepreneurship. I don't have a PhD yet, and the financial situation in
science and with startups makes me pretty nervous. Is it feasible for someone
without a finance/business background to jump to an IB/PE job for a few years?
I just want to feel more financially settled, before moving on with other
things. I'm not quite 30-something, and if it helps at all my microecon
professor in college apparently called my parents to get them to convince me
to major in econ (I must have been the only one in the class who cared).

------
bfwi
This article talks about a lot of things these firms do to attract talent.
What about just offering more money?

~~~
patmcguire
PE does. But only for some, it's anti-scalable. This is a nice little trick -
if you only accept 2% of a highly competent applicant pool, you must hire the
best, right?

Eh, maybe, but you could just get everyone to apply and make the same
decisions. Now you've got brand and people give you money...

It's intentionally a ludicrous amount to suggest that they're Just. That.
Good. to all their potential clients. But we can't all be payed three times
going wage, can we?

------
Balgair
Sorry to be a cynic, but:

"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."

Really, I don't think there will be too much hand wringing for these folks.

~~~
tootie
It's not a matter of professional ethics, it's a matter of them making
decisions in favor of their future employer to the detriment of their current
one.

~~~
uptown
Sounds like the revolving-door career path that many politicians follow.

~~~
spuiszis
It's exactly like that.

------
hacknat
The Epicurean Dealmaker's thoughts (he's an MD for some big shot bank):
[http://epicureandealmaker.blogspot.com/2014/07/you-go-
first....](http://epicureandealmaker.blogspot.com/2014/07/you-go-first.html)

~~~
MaxScheiber
"The solution to this dilemma, of course, is simple. Private equity firms have
become large and rich enough that they should do their own damn recruiting at
colleges to hire junior personnel."

This is already the case, at least at Wharton. A number of the PE megafunds
recruit undergraduates here, specifically Blackstone and Silver Lake. I only
really know of one or two offers being extended per year, but that's because
private equity shops simply have fewer entry-level positions -- they can
therefore afford to be picky.

I'm sure that PE middle-market companies also recruit here (my knowledge here
is more limited, as I gravitate toward the technology portion of my education
rather than the finance portion), but it seems likely that students would take
a bulge-bracket investment bank over a middle-market PE shop.

It's simple supply and demand.

~~~
hacknat
Interesting, thanks for the feedback. It's good to hear the other side of the
story.

------
michaelochurch
I think it's important to dispel a certain myth about this sector of finance.

Around and past an IQ of about 135, work boredom is a chronic risk and
sometimes a disability. If you're in this set, entry-level banking ("analyst"
programs) and private equity aren't where you want to go. Past 135 (much less
at 140, 150, or even 160) even 8 hours per day of grunt work is impossible,
much less 17.

There are plenty of 135+ in finance, but either they go for trading and quant
or even IT roles, or they move to "the soft side" at a higher level: usually
at least VP.

So, yes, these people are above average in talent, but they're not "the most
talented" in our generation. Depending on bonuses, they're not even the best
paid. Oh, and they're the ones who go on to become VCs (not you, programmers,
despite your superior talent).

The 23-year-olds making half a million in private equity do exist, but they're
(a) uncommon, and (b) not especially smart, just connected and unusually able
(top 1%) to grind out hours. If you want to become a Master of the Universe,
the optimal IQ is probably in the low-mid 120s: enough that you can build
something in Excel, but not near the level that brings boredom or anti-
authority risk.

~~~
foobarqux
Plenty of high IQ people in PE and hedge funds, especially those who entered
direct from college, skipping IB. They seem to be people who can tolerate
grinding though.

It may be true that the work gets boring but the alternatives aren't
significantly better (how many people at Google are doing substantially more
interesting work?) and pay and career advancement are much better.

~~~
michaelochurch
I acknowledge that there are plenty of very smart people in finance
(especially in quant roles). I said:

 _There are plenty of 135+ in finance, but either they go for trading and
quant or even IT roles, or they move to "the soft side" at a higher level:
usually at least VP._

Smart people tend to avoid competing on hours. Why? Because if you're putting
out a 17-hour day (which is necessary at the entry level on "the soft side")
anything that is a disadvantage can (no, will) derail you. That includes being
too smart for the work. So they prefer trading and quant jobs where the hours
are reasonable and also where the work is more interesting and they're not as
much at risk of high-IQ problems.

 _[P]ay and career advancement are much better [in finance than software]._

Absolutely. This is completely true. Any idea what we should do about this in
engineering? (Or just call it hopeless and exit for finance?)

~~~
foobarqux
I'm not convinced that smart people gravitate to quant roles. The hours may be
longer on the "soft" side but it is more prestigious and the work is less
taxing and doesn't require continually learning new skills.

I don't know how you can enter "soft" finance at the VP level.

> Absolutely. This is completely true. Any idea what we should do about this
> in engineering? (Or just call it hopeless and exit for finance?)

I think the ship has sailed for many people, you can't get into PE or non-
quant HF mid-career. When I was younger I often thought along the lines of "if
only everybody..." but I realized the hard way that it is much easier to
change yourself than to change the world.

When I give advice to smart kids entering college I tell them they should
strongly consider targeting PE/HF: If they hate it they will know from
experience and still have superlative exit ops, trivially able to land a
management/executive-track job at a tech company or elsewhere.

~~~
michaelochurch
_When I give advice to smart kids entering college I tell them they should
strongly consider targeting PE /HF: If they hate it they will know from
experience and still have superlative exit ops, trivially able to land a
management/executive-track job at a tech company or elsewhere._

This is not a comment on what you're saying (I don't think you're far off) but
it's pretty disturbing a reflection on tech that executive roles in our
companies are what finance people _fail_ into.

Most tech management and VC is failed finance/business guys who failed down
into those roles, not programmers who worked their way up the ranks. The
latter almost never happens, to tell the truth.

~~~
foobarqux
Yup, definitely something I didn't understand when I started out which is why
I make an effort to inform others in college.

