Two kids that I know from college (non ivy target, but they were top students in top groups) that graduated in May 2016 so 1.5 years total as analysts at BBs/EB's have recently updated their LinkedIn to "Associate at 'Megafund'" Is this a new trend that is happening?
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heister I think you are slightly removed from this process. I respect the insight you've shared across the past decade on this forum, but the sentence "The amount of experience one would have at 1.5 years in is not really all that great in this industry" shows how divorced your views are from the reality of the recruiting situation today.
There is such an absurd arms race among PE firms today that the formal recruiting process for summer 2019 positions for analysts who graduated in the class of 2017 commenced on the night of December 8, 2017. Assuming a July 10th start date, that's 145 days (less than five months) of total experience before interviewing for your next job. (Amusingly, that was documented pretty well in a https://www.wallstreetoasis.com/forums/private-equity-recruiting-kicked…</a">popular thread here.)
It's become increasingly clear that firms put more value on not missing out on a potential strong performer than on securing a proven strong analyst with solid deal experience and a more demonstrably robust skill-set.
You're correct that 1.5 years of banking experience is not superb, but that's no longer the point. PE shops are not looking for people with tremendous experience; they're looking for safe bets on cogs for their machine.
Through work I've had to spend more time talking to guys at the partner/GP level in PE the past year or so. Even within the megafund bracket, I've heard various comments to the effect that they're frustrated finding good partner-track talent the past five years, so they're treating the associate class as more of a disposable talent pool and looking to the MBA or experienced hire scheme to get what they want. (Some of these conversations steered toward relatively explicit asks for me to sign onto their team.)
That confirms something I'd noticed anecdotally, where guys I knew who were happy in well-comped roles at good shops were jumping to another place after two or three years to collect a title boost and (what felt like) generous carry economics.
Either way, I am not surprised to see more associates starting after their bonus hits early in the new year. There is legitimately no incentive left for those final six months. If the bank wants to dick you out of deferred comp (let's be honest and call the 'bonus' what it actually is; no one is signing up to do that damn job for an $85 base) under the guise of 'aligning incentives and encouraging talent to remain within the firm', then analysts should feel equally free to dick them back by not sticking around for the final (unpaid) quarter of that two-year term.
This is a short term talent squeeze. I seriously doubt this will continue for the long term. There have been a significant number of junior partners whom are figuring out that the PE world has a shit succession plan in place and are finding out that the seniors of the firm have no real desire to turn the reigns over like the industry has traditionally seen. We have seen an absolute massive growth in new firm foundlings and spin offs as the industry is going through two radical changes at once. The first is what I have discussed previously the second is a race towards specialization. Capital is moving to smaller specialized funds or groups. Gone are the days of large generalist funds, returns are lagging behind focused funds. I believe what we are seeing is a short term squeeze as the demand reaches an equilibrium with the supply.
That post sounds like you switched from talking about the associate recruiting scheme to addressing the secondary point I raised in my prior comment describing the partner-level talent shortage.
I agree that there are a lot of new fund launches. I also agree that the primary contributing factor is a bunch of guys waking up to the fact that it's better to own 100% of their own smaller-today carry pool (and future destiny) than 5% of some old dude's larger-today carry pool. I would point out a second major factor: the increased access to and democratization of information.
There is a tremendously lower barrier to entry today where people can learn so much more outside of a formal work environment thanks to the Internet (primers posted by service providers just sitting around on Google, free forums like this, webcast or video recordings of seminar talks, etc.). I know I've given away absolutely gold info on fund formation and structuring here, which I sometimes get a chuckle out of knowing that it's buried on some obscure thread that got zero traffic.
I disagree with you that we won't see the arms race over disposable junior talent continue interminably. The largest sign is that more and more funds are investing in their own analyst programs. Silver Lake was the first, they always took the best kid (sometimes two) from Wharton each year. BX has run a three-year analyst program for a long time, and KKR and TPG each formalized theirs 6-7 years ago. Now it's gone further; LGP and other MM firms are beginning as well.
I bet this will eventually get streamlined to the point that firms use headhunters to fill their 2, 4, 6 (whatever size they end up choosing to run) person analyst class the same way they do for the associate class now. It's more cost effective than maintaining an internal campus recruiting function.
This used to be done informally. I am not that old, I got headhunter emails doing my first summer in one of the 'big five' groups people used to idolize so much here asking if I'd considered an investing role directly out of college. Out of simple interest I took two of the coffee meetings: they were for MF PE analyst jobs, and I'm talking about Henkel / Amity / Oxbridge emails hitting me as a 20-year-old.
It certainly isn't the best way to get junior investment talent in the door, but it's an arms race, and when have those ever been sensible?
You raise an interesting point about the race towards specialization. While we have probably both seen a lot of the same data (that specialist funds outperform their generalist peers overall), I am still seeing a 'flight to quality' where the biggest guys are raising ever larger vehicles at an ever quicker pace.
Warburg is about to raise $13.5b for its 13th flagship fund starting in May, six months after they closed a $2.3b FIG-focused vehicle in December and only two years after raising $13.4b for flagship XII.
Vista is targeting $11b or more for a flagship VII ... after raising $11b last May. Thoma Bravo is targeting $10b for XIII ... sizing up after raising $7.6b a year and a half ago.
I have several friends in day jobs as LPs. It's amusing to see the disconnect; they all fight to get allocation in the big guys, but bitch and moan about not being able to get the allocation they want in 'emerging managers' while defining 'emerging' as Fund III or IV and refusing to back pedigreed guys on a small Fund I.
I am at a BB FSG group that competes with PE analyst programs while recruiting undergrad talent, and while I completely agree with you that PE shops want and benefit from having students right out of college, I truly think most students would actually be poorly served by joining such programs. I think there are some PE shops using their recruiting leverage and students' risk averse nature to damage their long term career prospects and churn junior talent. Here are some considerations and my pitch to students:
The Analyst program at a PE shop is not as good of a learning environment compared to being an Analyst at a (good group at a good) bank. Analysts at PE shops by a large don't model or have much responsibility. There is a lot of incidental work that doesn't involve much learning, a lot of pitching for deals that go nowhere, etc., even relative to banking. You would come out of a 2-year Analyst stint at a bank with a much more robust quantitative skill set.
Banks are a better place to make mistakes. When you start your first job out of college, you know nothing, and you will make a lot of mistakes even if you were a straight-A Wharton student and had a few internships under your belt. Better to hone your skills (hard and soft skills) at a bank for a few years, then move on to a PE company as a more experienced professional, rather than risk your reputation on how you perform early on. I think this is particularly true if you plan on gunning for a long-term career at that shop, i.e. to return after business school. YMMV.
You have more optionality recruiting for PE at a bank, time to discuss and compare shops, get to know people much better while recruiting, and you have the ultimate BATNA of having an existing job. Talking to other undergrad students is worthless, and doing informationals with people at the PE firm is helpful but ultimately biased during the recruiting season. The senior analyst class that has already been through the recruiting process last year and has that PE job offer already can tell you loads more.
Going through a banking program gives you access to a much larger alumni network across a wide number of PE companies and a wide group of friends and ex-colleagues. It much more than doubles your opportunity given the relative size of banking analyst programs to most PE shops. This is helpful once you are churned out to business school after a few years and you have to consider all of your future long term career options.
Last but not least, practically all other employees at a given PE shop have been banking analysts before. Having gone through a banking Analyst program, being forged in that cubicle crucible, is part of the shared language that PE professionals have.
There are a bunch of other considerations, but the long story short is, I think a PE analyst program is suitable for someone who doesn't need the benefit of the above points, i.e. already has a broad personal social network, rock-solid skills across the board, etc. At first, there were so few PE analyst programs that those type of people were all that were recruited. Unfortunately, with each year broadening the number of students going into these programs, I think that there are some excellent candidates getting scared or duped into doing PE "too early." Would be curious to know what your thoughts are.
I agree with you wholeheartedly. You introduce a new point that I didn't touch on in my prior comment: whether the hypothetical PE analyst role is the best option for a talented young person starting their career.
Much of what you wrote are things I've said verbatim in various threads here over the past few years. I don't have much more to add because you've captured really well the value that the banking analyst program affords.
Small comments:
career mobility: You touched on how useful the banking analyst position is in terms of preserving optionality for PE recruiting, but this is a narrower view to take. The broader benefit is that the banking analyst stint acts as a foundational stepping-stone for really any later career step. It is a strong signal that you have a robust financial and analytical skill-set, project management experience, work ethic and pain tolerance, and basic level of professionalism or polish. This is why people successfully recruit for much more than PE: HF, VC, private credit, real estate, management consulting, corpfin, corpdev, startups, general business ops, you name it.
who is the right fit: I can't find which one of my PMs I wrote this in, but the rare case where I'd encourage someone to pick the buy-side role out of undergrad over the banking role is where the person is a standout. Think of the kid that got the freshman BB banking rotational program, followed it up with a sophomore and junior year position at the same bank or better, and through either luck of timing or persistence on their part requesting staffings managed to be on one or more closed transactions. Even within the banking analyst talent pool there exists a real J-curve; some people really are standard deviations better than their peers in the same class. For some (few) people the benefits of the analyst class are either irrelevant or already obtained by the time of graduation.
I get the sense that you know all of this, so this post was primarily for the general public's benefit. Great and informed comment, +1 to you.
The last thing I'd add is that it's been interesting to see how many students fall into the 'prestige' trap when comparing a banking vs. PE analyst offer. If this is what you meant with your comment about people being 'duped' into PE, I agree.
I know anecdotally that many PE analysts end up having a bumpier time than advertised, where the firms end up struggling to staff them appropriately (what work do you give an analyst when you already have associates you're 'grooming' with the tedious and administrative tasks, or, worse, what can you trust someone who hasn't been through the known proving grounds of the banking analyst bullpen to adequately execute on?) which consequently impacts the quality of experience those PE analysts have, which consequently leads them to pursue opportunities outside the firm, creating a low ROI for the firm on those hires.
MF PE analyst that interned at a top BB here. I interviewed across many firms and have friends currently working as analysts at two other prominent analyst programs.
I am appalled by the comment that PE analysts do not model or have much responsibility. My time is allocated in three roughly equal buckets: modeling / data room crunching, industry / qualitative research, and process. Excel work: detailed operating build and LBO, sensitivities and outputs, along with the analyses around fixed / variable costs, unit economics, acquisitions, historical financials/KPI trends, etc. The associates do more "heavy lifting" modeling than us, but there is certainly enough to go around, especially if one proves themselves early on. Research work includes leading expert network calls, reading sell-side and industry reports, attending conferences, consultant, banker and advisor meetings, etc, and synthesizing this information for senior deal members.
I am surprised that you think analysts do not have much responsibility, given that analyst to associate offer conversion rate is very high across programs (90%+ to my knowledge), and it wouldn't make sense to hire associates who did nothing for 2 years. Banking is a better place to make mistakes and to learn professional skills, but A2A promotes on average have more goodwill relative to their average banking-hired peer (definitely true at my firm, but similar sentiment from peer firms). I believe BX and SL analysts both "skip" a year relative to their banking counterparts, so clearly both firms value the analyst skill-set very highly.
PE analysts go on to top-tier hedge funds, well-respected upper MM / MF PE associate programs, HSB/GSB, and more. Exit opps do skew towards investing, but that is likely a self-selecting bias. Also, the associates have all gone through recruiting and can provide advice - their network and knowledge base is collectively very exhaustive (admittedly, this is dependent on firm culture / openness among junior staff).
I could not agree more to APAE's point that there are analysts that are standard deviations better than their peers. It was very clear in my intern class who just "gets it." If this individual is also set on a career in investing, and finds the right firm (investment style, geography, experience w/ training and developing analysts, etc), then the PE decision makes a lot of sense, in my opinion. There are very few candidates that check all of these boxes, but as a reminder, there are also very few candidates that are competitive for these positions in the first place.
This is valuable firsthand insight.
Let me preface (or make an addendum to the prior ones) my comments by saying that unfortunately I'm socially removed enough from the analyst experience anywhere by a simple function of age that when I comment about it now, I'm doing it from a different angle: that of a partner-level guy.
I think someone with your level of articulateness would accept that by that same token, you as a current analyst are both (a) looking at your experience solely through the eyes of an analyst and (b) being treated by the people you talk to (associates at your current firm, PE analysts at other MFs, seniors at your current shop) as the analyst you are.
By that second point I mean that no one is going to belittle or disparage the work you do (unless you're at Apollo, https://giphy.com/gifs/l0Iy0ss0qJb0bCHHG/html5</a">hey!), minimize the level of responsibility you have, or tell you too explicitly what goes into the calculus of the decision behind promotions.
My previous comments come from direct conversations I've had with senior people at these shops who I interact with on deals. (I love to ask questions wherever I am, and candidly, I'm sometimes shocked by the information people reveal casually.)
The general theme of comments I received on these buy-side analyst programs from people at those firms was that it wasn't working the way they'd hoped. Few seemed to have any level of self-awareness, however, as to how they may have personally contributed to that gap between intended and actual outcome.
This matched and reinforced my already strong cynicism about how firms manage their standard-deviation-type talent.
One major contributing factor in my view is how little experience the entire stack of seniors at these shops have at managing. It's an entirely foreign skill-set. Think about it. The normal trajectory in PE is:
The harsh assessment I make of most guys is that in that first post-MBA role where part of their job description includes overseeing (either directly or indirectly) people in a job they themselves had only two years ago, they resort to one of two extremes: either way too hands-on (over-managing) or hands-off (under-managing).
It's understandable. If you were a really good associate, you're now a VP, and the associate on your team is just failing to give you that last ten percent of output on work product that you're looking for, there are two easy defaults. Do the work yourself (leaving them with no developmental feedback on how they can improve for the future), or hound them until they get it right (micromanaging).
Further, most people lack the self-awareness to be critically reflective on developmental areas of their own, meaning John Q. Vice President isn't sitting down once he gets Principal to think about how he can be a better manager. If you didn't have it before, the chance you develop it later in your career gets increasingly smaller.
The transition from doer-of-work to part-doer/part-reviewer is really bumpy. News flash: this is the real thing that people never clue into when they wonder where the soft-skills feedback they get as a PE associate comes from. It's the partners being indirect about saying the associate demonstrates no or too few indicators of being a good future manager.
News flash: Being a good manager is absolutely imperative to your success as an investment professional. It allows you to leverage your time effectively (delegating work components to more junior members of your team), streamline processes with service providers like counsel, bankers, and consultants to their peak efficiency (because you're managing the humans inside those service providers who interact with you on your deal), and also maximize what you get out of your portfolio executives.
In this light, it makes a lot of sense why the PE analyst programs don't appear to be faring very well. That problem where people don't manage well only gets exacerbated when you add another layer on the totem pole of seniority (the analysts).
All of this also coincides well with what heister and I were discussing about the shortage of partner-level talent. In these lean firms with really top-heavy ranks, people get really good at operating in a groove. Adding a new wrinkle (analysts to manage in addition to associates) to that groove will naturally create some hiccups.
+1 for a solid addition. To your point about Blackstone, they run a three-year analyst program, hence the 'skip a year' later you mention; it's front-loaded.