Value of Credentials when hiring
When you get down to it, the private equity business is effectively a fund-raising business. Demonstrated track record and results have primacy.
However, for newer funds (GPs with funds ~1-3), they need a way to convince investors to invest with them. So here's my question - do firms ever consciously weigh the "credentials" of their hires as part of the evaluation process?
Put another way, are credentials just a signaling effect about the caliber of the candidate, or do credentials in and of themselves have actual intangible value?
For certain people there is value to the credentials themselves, so there is value to having that candidate.
If you were not financially savvy but had to choose between putting $10MM with a bunch of Harvard then HBS guys or a bunch of state school with average MBA name recognition guys, who would you choose?
Now, you'll say (rightly so) that there probably isn't much difference between the groups, what is the strategy, etc. - because you're in the industry and you know that the school doesn't mean as much as the individual.
However, the LPs are looking to mitigate risk and not get fired during periods of down years. So, from their perspective, they can go to their boss and say "what do you want from me? I went to the most highly credentialed guys and they struggled" vs. "I gave a bunch of scrappy, hungry guys the allocation and they shit the bed."
It's all about brand recognition, pattern recognition, and risk mitigation.
There was another thread where someone mentioned that their PE fund will go around and tell LPs X% of their team is from Ivy schools.
Bill Ackman is the best example here, put him in a different school than Harvard, and I don't think he would've raised the same money he did when he launched his first HF after HBS. Not saying that he wouldn't be able to start it at all, but people care lot about where you went to school etc. Harvard education alone doesn't make the candidate valuable but the screening process of Harvard allows it to get the best students around the world makes a Harvard grad an attractive hire.
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