Private-Equity Recruiting Is Evolving, and We All Stand to Benefit

They were the shots heard round Murray Hill.

Recent announcements by JPMorgan and Apollo aimed at slowing down the early recruitment of junior bankers have sent young Wall Streeters into a frenzy.

First, JPMorgan threatened termination for first-year analysts accepting future-dated private-equity jobs. Then, private-equity firm Apollo delayed recruiting young bankers. Not long after, Business Insider was first to report that PE giant General Atlantic told young bankers it’s also pumping the brakes.

The entire episode is still unfolding, but it risks upending years of planning by people pursuing one of the most sought-after careers in finance. And the end result could be PE firms pulling from a much bigger pool of talent as opposed to the select few who zeroed in on nabbing a job in the industry years ago.

The news isn’t just important for your Wall Street buddy who played lacrosse in college, though. Upending the well-worn practice of PE recruiting could ultimately impact all of us.

And it’s not a bad thing.

The power of PE

Understanding the magnitude of JPMorgan’s and Apollo’s announcements is realizing the effort it takes to get a job in PE.

Imagine you have a big test on Monday. While most of your classmates spent the weekend partying, you buckle down and hit the books so you’re fully prepared. But when Monday comes your teacher postpones the test so everyone else can study more. That doesn’t negate the work you did, but it definitely stings a bit.

Now imagine it’s not a test but the chance at a job with a base salary upwards of $150,000 that you spent years, not just a weekend, getting ready for. Starting to get the idea?

Still, you might be asking yourself: Why do I care about changes to PE recruitment?

(To be fair, you clicked the link, but I’ll allow it.)

The truth is, this impacts more people than just those who consider a Friday night at Hair of the Dog a good time.

Private-equity’s reach is immense, and it’s only set to get bigger. At the end of last year, PE firms had $1.2 trillion in global buyout dry powder, according to Bain & Company. That’s a lot of cash ready to be put to work at a time when dealmaking takes off.

The industry is also evolving beyond the typical PE strategies we’re used to, like bundling up smaller companies. Firms are becoming big lenders, often beating regulator-constrained banks at their own game.

(Whether that’s a good or bad thing remains to be seen. But that’s a conversation for another day.)

In short, it’s a PE-backed world, and we’re all just living in it.

A recruiting cycle ‘that serves no one’

Working off the premise that private equity remains an unavoidable part of our future, the industry’s hiring tactics, even at the junior level, suddenly seem a lot more important.

Apollo’s move could be viewed as a way to avoid picking a fight with the biggest US bank. Apollo CEO Marc Rowan’s statement to BI offers some more insight.

First, he alludes to JPMorgan CEO Jamie Dimon’s criticism of the early recruitment of junior bankers.

“When someone says something that is just plainly true, I feel compelled to agree with it,” Rowan wrote via email.

He then touched on why a reset was called for.

“Asking students to make career decisions before they truly understand their options doesn’t serve them or our industry,” he wrote.

“When great candidates make rushed decisions it creates avoidable turnover—and that serves no one,” Rowan added.

I’m not trying to carry PE’s water here, but that makes sense to me! Not only is it incredibly dumb to ask young people to commit to their next job before they start their first one, but it also limits PE firms from a recruiting perspective.

Under the current framework, people vying for these PE positions tend to fit a certain profile. From prestigious universities to finance clubs to summer internships to analyst jobs, the path to PE glory doesn’t leave much room for detours.

That’s not to say these people make bad PE employees. God knows we’ve got plenty of examples of those who followed that exact route to success.

But who says there isn’t a great potential PE dealmaker out there taking the long road, so to speak? Maybe they didn’t learn about PE or realize they wanted to get into the industry until the treadmill was moving too fast for them to jump on.

Wanting to be in PE for a long time doesn’t make you the most qualified person to work in PE.

Meanwhile, pulling from such a small, selective talent pool could put firms at risk of groupthink. If you need to tick a certain number of boxes before getting a sniff at PE, you’ll likely find a lot of people who were taught to think the same way. And when it comes to investing, that rarely turns out well.

Moving away from that model is also good for the rest of us. As our interactions with PE firms grow, having people on the inside who understand life outside the PE rat race can benefit us all.

There are no gurantees it’ll hold

Full disclosure: I’m still not convinced this will ultimately change anything.

We’ve been down this path before. A few years ago a group of PE recruiters made a pact to hold off approaching junior bankers too early … only for one of them to break the truce and try front running the others. (This is Wall Street after all.)

There’s also nothing stopping another PE firm, let’s call them Whitepebble or LLS, from using Apollo’s pause as a way to scoop up even more talent. Or for another bank, let’s call them Nevermore or Wizard, from telling aspiring bankers they’ll be happy to help with their PE aspirations when they’re recruiting on college campuses this fall.

I’m also not naive enough to think that Apollo will open up the floodgates to anyone when it eventually starts recruiting associates. Even getting a sniff at such a prestigious firm will still be an honor for only a select few.

But a slight deviation from the regimented system we have in place, where committing to a long-term career before you’re even considered a legal adult is almost a prerequisite, is a step in the right direction.

What do you think of the change? Is it a good thing that firms are taking a pause? Or will the PE industry lose something by slowing down early recruitment? Email me at ddefrancesco@businessinsider.com.