Back to School: Most analysts favor PE over hedge funds: survey

  • 77 pct of junior bankers “very interested” in PE
  • 26 pct favored entering equity or credit hedge funds
  • 83 pct of respondents to Odyssey survey were men

Private equity has snatched back some of its recruiting mojo from hedge funds.

More than three-quarters, 77 percent, of analysts said they were “very interested” in pursuing PE after finishing with investment banking, a survey from Odyssey Search Partners shows.

A bit more than a quarter, 26 percent, favored entering equity or credit hedge funds, Odyssey said. Thirty-five percent were targeting growth or venture capital, while just 17 percent of junior bankers said they desired going in-house to do corporate development or strategy. Respondents were allowed to express interest in more than one type of strategy, Odyssey said.

PE has long been the traditional path for young executives once they leave investment banking, said Adam Kahn, Odyssey’s managing partner.

In the past decade, hedge funds gained in popularity due to the successes of executives like George Soros of Quantum Fund and John Paulson of Paulson & Co. “Billions,” the TV show, is about a hedge-fund executive.

That’s changed. The luster of hedge funds, dogged by bad performance, has waned. Carl Icahn’s $6 billion hedge fund lost 20 percent in 2016 after an 18 percent decline in 2015, Barron’s reported in January. Bill Ackman’s Pershing Square lost $1 billion in one March day due to its investment in Valeant Pharmaceuticals.

Odyssey, the New York search firm, places investment professionals at “fundamentally driven” hedge funds — those that actually invest in companies — and PE firms, Kahn said.

In January, Odyssey sent its Investment Banking Survey 2016 to more than 1,000 analysts, and nearly half responded. Young execs from 25 banks, including Credit Suisse, Barclays and Bank of America Merrill Lynch, took part.

The bankers that answered were in the midst of “on-cycle recruiting,” Kahn said. This refers to a period, starting this year in January, in which PE and hedge funds interview analysts for positions that start 18 months later. The junior bankers, about 22 years old, are fresh out of college and in their first year of a two-year analyst program, Kahn said. “Everything happens very quickly. It’s like a gold rush,” he said.

Some 62 percent of the junior bankers who answered Odyssey’s survey lived in New York, while nearly 10 percent were in San Francisco. Fully 83 percent of respondents were men.

Asked when they would transition out of investment banking, almost 57 percent said they planned to leave after completing the two-year analyst program. Almost 31 percent said, however, they were open to an immediate start date or were flexible on timing.

Ivy leaguers emerged as the most conventional. Some 82 percent of this group said they favored going the PE route, Odyssey said. This compares with 77 percent of all respondents who said they were targeting PE.

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