The Private Equity Draft
What does the typical Private Equity analyst have in common with a professional basketball player?
Other than being ballers; they are both getting drafted younger and younger, far more so on the basis of potential than that of proven skill.
Taking a page from the David Stern manual, Private Equity mega funds like KKR, Blackstone and TPGare making analyst recruiting more of a speculative endeavor than ever before.
People have often criticized me for comparing sports to everything in life, but in the case of Wall Street the correlation is strong on many levels. Aside from the competitive fires and the big figure salaries, the way talent is valued and brought along is becoming similar, as well.
Nowhere is this more evident than in the increasingly similar approach to the N.B.A Draft and pre-MBA Private Equity analyst recruiting.
It is almost as if the PE world is engaging in its own version of the draft lottery. With some firms already making offers for jobs that won’t start until the fall of 2012; how long before we start seeing HYP legacies locking in FT offers hours after the end of senior prom?
Now I know this makes some of you guys jump for joy and foam at the mouth. I can't say that I blame you, but I have to ask:
Is this really an advisable practice?
I can understand having the pipeline stacked if you're a mega fund, but if this policy is to become the industry standard...won't it hurt the overall level of play?
In perhaps the clearest sign that the recruiting frenzy has hit a boiling point, several smaller private equity firms have hired star students or well-connected ones straight out of college.
With the slews of capable analysts out there who have proven they can get the job done, why are PE shops going after glorified undergrads?
Didn't they learn anything from the N.B.A and its ill-advised high school to the pros experiment?
Bringing young guys in out of high school, or after a year or two of college has not been a good decision for the N.B.A. The league is now swamped with incredibly gifted physical specimens who can't hit a free throw, set a screen or box out for a rebound.
Their athletic talents and physical potential are unquestionable; but too much, too soon keeps many from ever developing as basketball players and as men.
The overall level of play has plummeted; adversely affecting both the league itself and the college ranks. Overall product quality and revenue generation has plummeted. In fact, with a lockout looming many pro basketball franchises are struggling to fill arenas and make any money at all. True fans of the sport are just tired of paying for a sloppy product.
Finance is a lot like basketball. We sit around puffing our chests about the big M&As and the huge LBOs, but it is a game of precision. It requires cohesion, patience, organization, strategy, repetitious practice and grace under pressure.
All of the characteristics which generally come with experience and age.
I'm not saying that there should be an age floor for PE analysts .
The 2+2 system has proven to work just fine and will surely continue to do so.
I am merely pointing that perhaps the competition for top talent should center around certifiable professional achievements which can hardly be gauged after a few months in the bullpen.
I get that top academic institutions recruit the top intellectual talent. But so do Nike camps and that rarely guarantees success in the league.
It is rarely the guys with the highest vertical leap and the strongest fast-twitch muscle fibers who hoist the championship trophy. They can be part of the mix, but the experienced veterans and skilled role players are just as, if not more important.
Let's consider the lessons of the watered down product that is the N.B.A. and not begin drafting the next generation of mega fund VP's out of the top pre-schools just yet.
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