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Editor’s Letter: Private equity’s broken recruiting process

  • Recruiting for 2020 class started this fall
  • Hypercompetitive process a function of late cycle
  • Process is broken, sources said

I’ve been getting a big response to a column I wrote about the hyperaggressive recruiting process private equity firms are using this year to find their future superstars.

TWSJ reported earlier this month that Thoma Bravo kicked off the process early, spurring rivals to get their interviews underway earlier than usual.

Candidates being interviewed graduated as recently as last spring and have been working for a matter of weeks or months. People who sign offers finish their two-year bank analyst programs and start working at firms in 2020, some with salaries that exceed $300,000, the article said.

Candidates are being judged on GPAs and standardized test scores since they have barely any work experience. This gets into another area of interest for the PE HUB community: Is an MBA necessary to work in PE? That’s the topic of our cover story this issue.

Here’s some reaction:

Caitlin: Early recruiting is a huge barrier to alternative-asset diversity. In addition to favoring “traditional” backgrounds, I suspect it increases unconscious bias and disadvantages underrepresented candidates who lack a strong network of folks with insight on the job and idiosyncratic recruiting processes.

Anonymous: Because it is so early, PE firms rely heavily on firm reputation (so if a candidate is at Morgan Stanley, Goldman Sachs, etc., they have a meaningful advantage, even if they aren’t actually as good as someone at a smaller or less well-known bank). What is being missed is how much more important undergraduate reputation is as recruiting moves earlier and earlier (last year things kicked off the first week of December and the year before the first week of January). If a candidate attended Penn/Wharton, they’ll receive interview requests from firms even if they explicitly communicated to headhunters that they are not interested in those firms.

John: PE shops could hire more people straight out of college. They won’t do this; instead, they’ll choose to let banks foot the bill for the expensive training and weeding-out of analysts. Banks could penalize (possibly in the form of bonus-clawback) analysts who leave to private equity, or just make banking a better environment to work in. In the 2017 Goldman Sachs analyst class, zero people made it past two years. All but one analyst left GS for PE or a different career, and the one person who stayed with GS moved to a different team … the senior folks know analysts will leave after two years, so they run them into the ground knowing fresh replacements are a year away. 

Colin: Chicago interestingly is a bit of a “bubble” with regards to associate recruiting. Headhunters are much less utilized for pre-MBA than in other markets, often lack knowledge of processes and wield far less power overall. Most firms (excluding the biggest few) use the Private Equity Association of Chicago’s resources (resume book, PE fair) to recruit.