Wall Street’s Class of 2013 is being poached earlier than usual by private-equity and hedge funds, showing it’s going to take more than Saturdays off for the biggest banks to keep their most ambitious employees.
The rookies, who typically graduated less than a year ago and already earn at least $100,000 annually, are being lured by offers that can double their salaries, bankers and headhunters said. Apollo Global Management LLC, which finished raising an $18 billion fund in December, began interviewing investment-bank analysts in February, helping kick off investment firms’ recruitment about a month earlier than in past years.
Since the 1990s, college graduates who won lucrative positions on mergers-and-acquisitions teams at Wall Street banks have then vied for even higher-paying jobs at investment firms. The funds are luring away young bankers even as Goldman Sachs Group Inc. and its competitors seek to relax grueling analyst programs to persuade employees to stay more than two years.
“Their best and brightest are getting picked off,” said Paul Emery, 28, a former Morgan Stanley analyst now at Stanford University’s business school. “Those kids are groomed over two years to be perfect workhorses for private equity.”
San Francisco-based Hellman & Friedman LLC and Washington-based Carlyle Group LP also are among funds that started recruiting last month, the bankers and headhunters said. They’re mostly hiring in advance for jobs that start in 2015. That gives analysts more time at the banks to learn how to make financial models and pitches for deals. Spokesmen for those companies and Apollo declined to comment.
“No one thinks it’s a sensible system, but that’s the way it’s been,” said Adam Zoia, founder of Glocap Search in New York, which specializes in finding young analysts. “The banks can’t compete.”
Working on the so-called buy side means earning more and logging slightly less than the 80-hour weeks the banks demand, said 20 current and former young bankers, some of whom asked for anonymity because they weren’t authorized to speak publicly.
Private-equity firms can pay more because they can generate profits buying and selling companies without many employees, while banks need more staff for providing advice and handling trades. New York-based Apollo, the third-largest U.S. private-equity firm, had about $6 million of revenue for each of its 710 workers last year, while Goldman Sachs’s 32,600 employees generated about $1 million on average.
The prestige gap has widened since the financial crisis as banks reduced pay for mid-level staff and closed their riskiest businesses to comply with new regulations, the young bankers said. Associates and vice presidents -- the next rungs on the banking ladder above analysts -- now receive much of their bonuses in deferred stock, they said.
“There’s a lot of crap that people were willing to put up with when it was cool to be an investment banker,” Emery said. “It used to carry a certain social clout.”
The stress of the recruiting process reminds analysts of college admissions and what they went through to join the banks. The interview invitations started coming on Feb. 20, the bankers and headhunters said.
One first-year mergers analyst, who asked not to be named, said he was given 12 hours’ notice for an in-person interview, received an offer and then traveled from New York to San Francisco to meet his future colleagues. Deciding to take the job was easy, he said.
“People who have high expectations, they’re going to try to push,” said Wes Haydon, 27, who worked at two private-equity firms after two years as an analyst in New York-based JPMorgan Chase & Co.’s financial-sponsors group. “For the type of person who wants a little more creative and entrepreneurial setting, PE is absolutely that way.”
Bosses at most banks understand the recruiting process and tolerate the job interviews, the analysts said. New York-based Morgan Stanley rescinded a policy in April that had banned its analysts from hunting for work in their first year. Junior employees had complained about the rule.
The biggest investment banks are setting aside a smaller portion of revenue for employee pay amid regulatory pressure and shareholder demands for higher returns. Goldman Sachs, the No. 1 merger adviser last year, allocated 37 percent of revenue for compensation last year, the second-lowest figure since the firm went public.
With pay down, Wall Street is pushing dealmakers to take it easier on young bankers. New York-based Goldman Sachs told analysts last year to take Saturdays off, saying new hires should want to make a career at the firm. Charlotte, North Carolina-based Bank of America Corp., the second-largest U.S. lender, said in January that, while it never recommended weekend work, it now encourages bankers to take four days off a month.
Compared with what private-equity firms offer, or the excitement around startups, a few extra hours a week off duty isn’t going to make a difference, the young bankers said.
Jessica Kramer, a former Morgan Stanley saleswoman who’s now a student at Harvard Business School, said that when she interned last summer at an exercise-tracking app maker, runners she met would tell her how much they loved the product.
“I was like, ‘Oh wow, that feels good,’” said Kramer, 28. “People like the thing I’m working on rather than detest the thing I’m doing. I’d rather work at a company that I can get behind.”
The men who helped create the private-equity industry in the 1990s and 2000s have become billionaires. Apollo founder Leon Black, 62, received about $369 million in distributions last year, 16 times the pay of Goldman Sachs Chief Executive Officer Lloyd C. Blankfein, 59. Some of the future financiers said the buyout industry’s buccaneer spirit is fading as its bureaucracy expands, like banking’s did years earlier.
Haydon said he left private equity last year after raising seed financing to start a personalized weight-management service called Selvera. He said he wanted take the risk of starting a business while still young enough to bear it.
“When you spend enough time in the private-equity industry, you realize the richest guy in the room is the one selling his business,” Haydon said. “He’s probably very fulfilled as well because he’s created something he believed in.”