Private Equity Groups Gain Upper Hand in Attracting Talent

Tony James, the COO and President of Blackstone Group had expressed fears saying private equity world is suffering a brain [...]

January 4 2008 by Fayazuddin A Shirazi

Tony James, the COO and President of Blackstone Group had expressed fears saying private equity world is suffering a brain drain to the hedge fund fraternity a couple of years ago. That was 2005. Now it’s the other way around. While private equity is gaining an upper hand in attracting talent, the hedge fund groups and the investment banks are apparently losing the talent war. 

Private equity compensation report released by Glocap, an executive search firm and Thomson Financial, indicates that private equity industry has emerged as a strong competitor for the hedge fund groups in attracting talent. According to the findings of the report, the upward pressure on total compensation packages is driven by the record fundraising, especially at the larger buyout/growth equity funds, and by the sustained competition from hedge funds, which are targeting some of the same talent. “These two factors continue to drive the immediate needs for skilled investment professionals and, as a result, in looking to secure the very best talent we saw private equity firms launching their annual recruiting with more urgency than ever before,” Brian Korb, a partner at Glocap told Chief Executive Online.  

Korb underlines the fact that despite credit turmoil and the looming sub prime crisis, private equity has been raising enormous capital. “There’s not been much of the impact of the credit crisis on PE industry and we attribute buyout funds’ ability to withstand the pressures of liquidity crisis and yet attract talent to its qualities of record fund-raising. It has made lots of money and that’s something amazingly consistent,” notes Korb adding: “The real reason why private equity is able to attract talent is because it offers tremendous upside. If you do something really great, you’ll be generously recognized for your work and you will make lots and lots of money, which is otherwise difficult at a publicly traded corporation,” he says.

Recent MBA graduates who join a large buyout fund like Blackstone or KKR stands to earn more than $400,000 in salary and bonus and the junior MBA’s can make about $200,000 to $250,000 in compensation, says Brian Korb.

However, the same set of MBAs at big, publicly traded investment banks can expect to make approximately $150,000 to $250,000 in salary and a top up of few thousand dollars in bonus money, which is far less in comparison to what they might get at a private equity group, says Korb. An estimate from FT quoting Eric Moskowitz of the Options Group, a global executive search and strategic consulting firm, also indicated that the first-year associates with MBA degrees at big, publicly traded investment banks can expect to make $70,000 to $80,000 in base salary plus bonuses of $60,000 to $80,000.

Industry experts attribute this trend to the ability of the private equity groups in ensuring long-term career prospects and faster growth options. “I believe that younger talent is attracted to the cache of private equity because of the fast pace and the perceived opportunity to “hit it big” with any one deal. The quick pace and a sense of doing different things, appeals the smart and pace driven people who wouldn’t mind working in chaotic business atmospheres,” says Cindie Jamison, Partner and National Director of CFO Services for Tatum, an executive search and services company.  

Experts are also of the opinion that private equity has been attractive to junior bankers for several reasons, including the promise of “easy money” without all the pomp and ceremony of a big bank.  “The entrepreneurial workplace and chance for greater visibility and responsibility at an earlier stage of one’s career has been highly intriguing,” says Justin Pettit, a New York based vice president with Booz Allen Hamilton. “In short, private equity has been the sexy choice on campus. At the senior levels, the money and the personal freedom have been the significant draws,” he says.