Wall Street Banks and Private Equity Firms Compete for Young Talent
nytimes.com
nytimes.com
What's interesting is that a similar thing happens after two years as a private equity associate, in that almost all PE associates are booted out after two years, being told that they don't have the skillset to be promoted within the shop. At this point, I believe that many employees move onto internal corporate development, but my knowledge here is pretty incomplete about what happens after that break in the track. ("Greatness", perhaps?[0])
[0] http://www.leveragedsellout.com/2007/07/breaks-in-the-track
Many PE shops, VC funds and banks do this because they want you to get an MBA. This is why many of the associate hiring positions are described as pre-MBA associate and post-MBA associate. Post-MBA associates are the ones that will go onto internal promotions and potentially the partner track.
http://paulgraham.com/submarine.html
This article describes a process that's being going on for decades, but manages to do so while imbuing a "drama" that only a headhunting firm could truly muster (or the guy who wrote the book selling for $299).
It's true, that the pressures have ramped up over time as private equity becomes a monster approaching the size of the banks themselves.
But at root, this article is about people in one great job, looking to go to another great job. News, indeed! Nice work to the press people who put this together.
We could debate the many reasons for this fact, but suffice to say that there is A: a lot of money riding on getting such stories printed, and B: not enough time in the day or money to pay journalists to do the real work.
This plays out in a couple ways. The most common form is where the PR firm is also representing a company that advertises in the outlet. The New York Times writing about suits was probably printed on a page next to an ad for Macy's. The editorial guys are not complicit, but it's become common for sales to make "intros" to editors at parties and such. It's gross, but common.
Another way it plays out is that we get some amazing, long article with in-depth journalism that's just the best thing you've ever read. Then no one reads it because it's really long and doesn't have pretty pictures, so compared to the story linked next to it on the front page, it's basically a one or two day blip in the system, then it's forgotten. Meanwhile, that other story with a title like "Docker will revolutionize datacenters," or "Google Glass User Assaulted," are getting the same number of hits, and they took about 10 seconds to write, so as a journalist, it can be a bit frustrating to be beholden to "hits," rather than to "quality."
Which, frankly, is what most journos are dealing with. Most outlets want quantity over quality. That means the writers tend not to understand what they're writing about, but rather, they're just flying over and giving a scouting report in a vain attempt to be first.
The Wire got this soooo right in season 5. Beat reporters need to cover their beats. The smaller the beat, the better they should be able to cover it. If you have one reporter on programming only, you can really get the pulse of the industry, rather than just having your tech reporter check in every 3 months.
Journalism remains broken, with many examples of great work being ignored in favor of "10 reasons Beiber is made of plastic, and what types of plastic those would be if he were made of them," stuff. How are we going to write about people places and events when those people places and events are writing about themselves for free.
I think one interesting thing that the article left out is that the situation has actually changed a fair amount in the last decade. Around, say, 2002-2006, second year banking associates (and sometimes management consultants) interviewed in the spring (~18 months into their banking job) for PE jobs starting that fall - around 3-4 months early. This seems pretty normal.
But an arms race started, and in 2006-2007, interviews were happening in January. In 2008, headhunters joked that soon they'd be interviewing candidates a few months after they started, and then that's exactly what happened. The next year, they started in December, then October or November, and they continued to go earlier until the current state where they interview after 6 months on the job for a new job 15-18 months away.
So, it's worth noting how much it changed in a fairly short time frame. I think this must have to do with the number of PE firms that exist now compared to 2000 - back then, there was no point to interview early because no one else would swoop in and get your candidate.
Also funny is that it's all somewhat based on a notion that all candidates vary on one dimension of "quality," that the "best" candidates will be gone if your firm doesn't try to snap them up now, and furthermore, that you'll be able to figure out who the "best" candidates are at that stage.
It's a classic coordination failure - even given how silly that premise is, and even though the resulting situation is so obviously crazy to all involved, it continues to occur, because that's how the incentives line up.
What's also interesting is that there's no clear way to change things. Coordination failures are often fixed by governments, when the situation is important enough (this hardly qualifies). College admissions solves this by tacitly agreeing to have everyone apply the same time every year. Of course, some colleges tried to beat this with "early decision" and "early action," which conceivably could have continued like this did (with applications starting in junior year, etc.). But it seems there's some combination of respect for the process, decorum, etc., that prevented it. Plus, once a group of the "top" schools decided to eliminate the early decision/action process, the decision stuck (for a while at least - it appears to have come back) . In that case, there was a fairly agreed upon list of "top schools" that could set the terms, given most students would be willing to wait and apply there. But with PE firms, most candidates would be willing to take a job with a middle market fund (and make a looot of money) rather than gamble on a bigger fund (assuming those are more desirable, which isn't always the case). I suppose that things could change if banks got stricter around things (as they're trying to), or if all PE firms could agree (if that's even legal...?), but it's not an easy solve.
Of course, no one will be throwing a pity party for anyone involved. The banks, PE firms, candidates, and headhunters will all be fine. Still, it's a funny situation to watch, in a "how can that really be happening?!" sort of way.
>In recent years, we have seen a growing number of early offers with short deadlines for high energy theory postdoctoral positions...We are worried that this practice is preventing young researchers from making a free and fair choice among their job opportunities. And, while there may be some short term advantage for the institutions which do this, we believe it will have serious negative effects in the long run....Thus, we commit to make no postdoctoral offer for the fall of a given year, whose deadline for acceptance is earlier than January 7th of that year.
http://insti.physics.sunysb.edu/itp/postdoc-agreement.html
I think all the postdoc applicants generally like this, so it does seem to be in their best interests.
It's very plausible that various private companies have a harder time than HEP professors coordinating on a pledge like this given legal restrictions and the fact that they do not have the common framework of academia. So I think this really could be a prisoner's dilemma.
Contrary to your intuition, most people do not want the inflexibility of needing to decide on their next job 2 years ahead. For example, if you're a young law student, you're still learning what kind of law you actually want to work in, and it's very inconvenient to have to choose years ahead of time what court you work in, at which point your academic (or love) interests may have changed.
Eh, maybe, but you could just get everyone to apply and make the same decisions. Now you've got brand and people give you money...
It's intentionally a ludicrous amount to suggest that they're Just. That. Good. to all their potential clients. But we can't all be payed three times going wage, can we?
"Promising to take a job with a particular firm can create a conflict of interest for an investment bank analyst, especially one assigned to work with private-equity firms on deals, bankers say."
Really, I don't think there will be too much hand wringing for these folks.
This is already the case, at least at Wharton. A number of the PE megafunds recruit undergraduates here, specifically Blackstone and Silver Lake. I only really know of one or two offers being extended per year, but that's because private equity shops simply have fewer entry-level positions -- they can therefore afford to be picky.
I'm sure that PE middle-market companies also recruit here (my knowledge here is more limited, as I gravitate toward the technology portion of my education rather than the finance portion), but it seems likely that students would take a bulge-bracket investment bank over a middle-market PE shop.
It's simple supply and demand.
Around and past an IQ of about 135, work boredom is a chronic risk and sometimes a disability. If you're in this set, entry-level banking ("analyst" programs) and private equity aren't where you want to go. Past 135 (much less at 140, 150, or even 160) even 8 hours per day of grunt work is impossible, much less 17.
There are plenty of 135+ in finance, but either they go for trading and quant or even IT roles, or they move to "the soft side" at a higher level: usually at least VP.
So, yes, these people are above average in talent, but they're not "the most talented" in our generation. Depending on bonuses, they're not even the best paid. Oh, and they're the ones who go on to become VCs (not you, programmers, despite your superior talent).
The 23-year-olds making half a million in private equity do exist, but they're (a) uncommon, and (b) not especially smart, just connected and unusually able (top 1%) to grind out hours. If you want to become a Master of the Universe, the optimal IQ is probably in the low-mid 120s: enough that you can build something in Excel, but not near the level that brings boredom or anti-authority risk.
And I know some 20-somethings making $500K and more for PE megafunds. There are some guys from middle class backgrounds there.
The connected-but-useless ones tend to get hired in investment banking.
It may be true that the work gets boring but the alternatives aren't significantly better (how many people at Google are doing substantially more interesting work?) and pay and career advancement are much better.
There are plenty of 135+ in finance, but either they go for trading and quant or even IT roles, or they move to "the soft side" at a higher level: usually at least VP.
Smart people tend to avoid competing on hours. Why? Because if you're putting out a 17-hour day (which is necessary at the entry level on "the soft side") anything that is a disadvantage can (no, will) derail you. That includes being too smart for the work. So they prefer trading and quant jobs where the hours are reasonable and also where the work is more interesting and they're not as much at risk of high-IQ problems.
[P]ay and career advancement are much better [in finance than software].
Absolutely. This is completely true. Any idea what we should do about this in engineering? (Or just call it hopeless and exit for finance?)
Most people capable of making that decision believe that somebody with a Harvard MBA is worth a particular sum because that's what the market, their experience, their network, and conventional wisdom tells them. For that same person to believe that a top engineer with or without a strong pedigree is worth the same amount would require that person to understand a lot of details that few are willing to learn.
I don't think this is necessarily a setback for all engineers- it just creates different but highly lucrative opportunities for those that are able to make the business case to those who write the checks. Instead of relying on your pedigree and the fact that the market at large widely agrees what certain pedigrees and jobs are worth a lot (which is what makes top schools and PE/IB jobs so competitive), you have to convince people of your value on your own.
Edit: To be less abstract- an example would be starting a tech consulting business in which you bill $200/hour. Not necessarily an easy task, but if you can show that you're worth more than that to the business, you can convince them to pay you that much.
I don't know how you can enter "soft" finance at the VP level.
> Absolutely. This is completely true. Any idea what we should do about this in engineering? (Or just call it hopeless and exit for finance?)
I think the ship has sailed for many people, you can't get into PE or non-quant HF mid-career. When I was younger I often thought along the lines of "if only everybody..." but I realized the hard way that it is much easier to change yourself than to change the world.
When I give advice to smart kids entering college I tell them they should strongly consider targeting PE/HF: If they hate it they will know from experience and still have superlative exit ops, trivially able to land a management/executive-track job at a tech company or elsewhere.
This is not a comment on what you're saying (I don't think you're far off) but it's pretty disturbing a reflection on tech that executive roles in our companies are what finance people fail into.
Most tech management and VC is failed finance/business guys who failed down into those roles, not programmers who worked their way up the ranks. The latter almost never happens, to tell the truth.
PE, big banks, all of that money is based on information gathered from the companies before the rest of us peons get wind of any of it. John Q. Public is playing what he thinks is a fair lottery, while the wizards are pulling the levers behind the curtains. If we as engineers could figure out a legal way to "earn commissions" (read: steal from tens of thousands of people every year based on information asymmetry), then $500k is no problem. Until then, however, we are confined to, you know, actually trying to create value for people rather than extract it from the system.
Pardon the cynicism, I am pretty unnerved by our whole economic incentive structure.
Interesting. I went to a rather old-fashioned school with a strict IQ cutoff of 125-130+ (Stanford-Binet LM, I think, because some scored above 160), and my impression is the opposite: the higher they scored, the more they valued career paths like (non-quant) finance, medicine or corporate law --tracks with plenty of grunt work and long hours but well-defined, steady payoffs.
I asked many of them about this because, to me at the time, it seemed counterintuitive and a tragic waste of human talent. It often turned out, however, that they chose those careers precisely because they lavishly reward grunt work, which they can do with such incredible (almost infuriating) ease that, to them, it doesn't feel like work at all!
That is not to say they do not have rich intellectual lives outside of work: but that, for them, corporate work is more like a generous sinecure that doesn't substantially impede their other pursuits. In fact, it was those of us with the "lowest" IQs who tended to be more freaked out about the prospects of mindless corporate work, and who were more likely to go for more "intellectually stimulating" careers like academia or applied fields.
Your thesis is interesting.
I suppose I thought that the grunt work of those careers was like the grunt work of programming, e.g. maintenance of bad code, learning "how we do things here" idiosyncrasies with little general value: mentally taxing (and, at an IQ above 130, mind-crushingly boring) but not intellectually difficult.