Three years ago firms were competing against hedge funds, said Bennett Rosenthal, Ares Management’s senior partner and co-head of the private equity group. Hedge funds were offering “gigantic current comps” to smart recruits, said Rosenthal during the Bloomberg Dealmakers Summit late last month.
“We’ve been the beneficiary of [hedge funds] being a less attractive career these days than it was three to four years ago,” said Rosenthal, who spoke on the panel, “Private Equity: What’s Next?”
Before the financial crisis, high-flying hedge funds vied with private equity firms for recruits. That’s changed. Some hedge funds have yet to fully recover from the downturn and some are downsizing amid a continuing slowdown in trading. Wall Street investment banks, like UBS, are also cutting jobs.
Private equity offers “stability and growth and career development” for candidates just starting out, said Rosenthal, who expects the industry to continue growing. “If investors are allocating more capital to private equity and to alternative investments, which they will, it’s still going to be a great career for people,” he said.
Rosenthal’s positivism is in line with a recent survey that shows private equity staffing likely to increase this year. More than half of buyout and growth equity firms, or 61 percent, said they planned to hire investment professionals at the analyst, associate and other-non-partner levels by the end of 2012. This compares to last year, when 29 percent of buyout and growth equity firms said they actually did at junior investment staff.
But hedge funds do pose a danger. One private equity exec of a large buyout shop, who spoke on the sidelines of the Bloomberg conference, said he would disregard any candidate who admits they wanted to work in a hedge fund.
Private equity is geared to people who take a longer view of investments, where rewards can take years to come to fruition, this source said. Hedge funds, in contrast, are for individuals who are more short-term investors and seek “immediate gratification,” the exec said. “The young person seriously considering going to a hedge fund isn’t right for my business.”