Recruitment: Tough times poaching top talent

The strongest trend in private equity recruitment this year has been the hiring of associates and analysts, as private equity investors ramp up deal-making activity. This is indeed a significant trend-reversal, with investors moving away from a focus on netting in top-tier restructuring professionals to keep portfolio companies afloat. According to market participants, hiring at the junior level has been significantly higher than the mid-tier space, where a number of professionals are still struggling to find placements.

"People are looking at investments again and there is therefore a need for associates and analysts - which is not something that has happened in the last two of years," says Fred Cooke, London-based private equity consultant at Marks Sattin. "Hiring in the last two years has mainly been for senior level professionals that have experience in restructuring."

Investment banks have traditionally provided an easy poaching ground for private equity houses looking to beef-up their origination teams with junior professionals for research, analysis, modelling and valuation. The strategy has been to lure associates experienced in running live deals from investment banks, with promises of higher remuneration and masters in business administration (MBA) backing. But bank employees are set to become more difficult to attract, with a number of major banks raising basic remuneration for associates across their investment banking divisions by about 20% this year.

"The factor that will have the most impact on private equity associate recruitment in the next six to nine months is the re-basing of salaries within investment banking, particularly in the M&A teams where the PE guys look for their hires," says Gail McManus, managing director at Private Equity Recruitment in London. "The question is whether private equity houses are now going to hire at the increased rate, and how that affects internal differentials - as the older and more experienced people will now have salaries that are underweight."

There is also a secondary impact on existing staff, who may now question the economics of sticking in private equity, when the banks they jumped from now offer higher remuneration. Indeed, the reverberations are already being felt in the mid-tier space - with some private equity professionals looking at getting into banks, reversing a historic trend.

This could be problematic for a number of private equity houses, as some face declining cash flows as GPs question fees and funds struggle to provide high returns. It remains to be seen whether they can step up to the challenge to attract top-quality resources to put together the best deals - a trait they have historically been known for.

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