In the film The Wolf of Wall Street, Leonardo DiCaprio portrays a sex and drugs fuelled stockbroker. While real life stockbroking is a lot more mundane, that fiction has held a certain appeal for generations of finance graduates.

The route to that lifestyle used to be through M&A banking with an investment bank. Whether you worked with Goldman Sachs, Citigroup, or Morgan Stanley, you were part of an exclusive club with pay, prestige, and bragging rights beyond that of ordinary mortals.

But since the 2007-2008 financial meltdown, investment banking has lost much of its shine. And the stats are against them: investment banking revenues have fallen to 13-year lows, while M&A deal volume for the first nine months of 2019 is down to its slowest pace in more than two years.

So, fresh graduates are increasingly looking elsewhere. For many, private equity is where the money is. Real life wolves of Wall Street like Stephen Schwarzman, Henry Kravis, and even former presidential contender Mitt Romney are the superstars and ones to emulate. Together, their net worth dwarfs the GDP of many island nations.

One consequence of private equity’s current preeminence is that, in the battle for talent, it’s no longer a contest. There’s a massive status realignment: the big private-equity firms essentially treat Wall Street’s major banks like an apprenticeship for young talent, plucking away the most desirable graduates after they’ve had a couple years of seasoning.

Consequently, recruitment firms have sat up and taken notice. And the job of serving up a steady stream of talent falls to a small group of specialised headhunters. Once they identify a promising talent fresh on Wall Street, they send a message along the lines of, “We want to talk to you about what your goals are for the future. Can you set up a meeting with us?”

Meetings, Interviews, Offers

During the meeting, the conversations are less about dealmaking experience than whether the candidate is articulate and presentable. After all, they can’t send bad candidates to their private equity clients. At the end of the process, the recruiters send a polished book of resumes to their clients to choose for interview. The interview process is no different than any other highly competitive industry, consisting of multiple rounds and possibly several problem-solving scenarios.

The real fun comes when the offer is made to the candidate. In the world of private equity, offers are made hours after the interview, with a special focus on the hard sell. Often, a call will be made in the middle of the night, informing the candidate of his or her success in the interview, setting out the offer’s terms and conditions.

Some firms literally make the candidate accept the offer on the spot, otherwise its gone. More common is offers that expire after 24 hours. The goal is to minimise candidates ‘shopping’ for offers. A notable exception is Bain Capital (the firm co-founded by Mitt Romney), which gives lucky prospects all the time they need to accept – Bain wants to make sure its their first choice after exploring their other options.

Greed Isn’t Good

In some ways, investment banks are the victims of their client-driven work culture, where everyone is on call 24 hours a day, 7 days a week. The sex and drugs are a consequence of the ‘greed is good’ culture which pervaded the banks in the 80s and 90s. The recession which happened a decade ago did not help either. When compared to private equity firms (which offer more money) and tech companies (similar money, more perks), investment banks are hemorrhaging talent.

But it seems that the banks are not objecting to this. When fresh graduates sign up with an investment bank, they usually do so with a two-year ‘investment banking program’ following an internship. If they don’t fulfill this commitment, they may have to repay a portion or all of their pretax signing bonus that can be as high as US$50,000, or forego their bigger year-end bonuses. But they can be more difficult to manage once they get a private equity offer. After all, why would you pull an all-nighter for Morgan Stanley if you’ll be leaving for Blackstone Group in six months?

Banks seem to have come to grips with the reality of the situation, even if they don’t like it, and recognize that they risk not getting talent at all if they put up too much of a stink. Some firms even encourage the analysts to go to private equity firms because that gives them a better chance of getting the very best college graduates. A partner at an investment bank once told a young banker, “I’m going to get you whatever job you want, but you’re going to bust your balls for me for the next two years.”

And it helps that investment banks and private equity firms do work together occasionally, with investment banks sometimes acting as advisors in private equity deals. Many private equity partners are also former investment bankers themselves. There is one exception: Goldman Sachs has a three-year program, and they will fire any associate found to be recruited.

Work-life Balance?

Of course, the mad world of finance still has to address many of its work-life balance issues. Private equity associates don’t escape all-nighters and weekends when dealmaking season rolls around (though they still work shorter hours on average compared to investment bankers). The senior ranks of investment banks and private equity alike are dominated by men, with precious few women willing to climb the ladder. And the sheer amount of money at stake leads to sharp-elbowed competition and toxic office politics.

Other industries are quickly snapping up talent left by the wayside in finance. Tech companies in particular have been a beneficiary of this trend. Developing algorithms to smooth dealmaking is much easier than making the deal itself. Hence, boards of investment banks and private equity firms alike must re-think their business model – or be replaced by a computer.


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