Has Goldman Sachs been firing first-year analysts for landing jobs with private-equity firms?
Yesterday (Tuesday), Bess Levin of DealBreaker quoted an unnamed source claiming that Goldman had fired “a bunch” of investment banking first-years who had successfully landed positions presumably to begin after their 2-year Goldman contracts expired.
From DealBreaker’s source:
Goldman has been firing IBD first year analysts with buyside offers for next year. Senior people are calling up funds to ask if any analysts have received offers from them. A bunch have been cut so far.
My own investigation reveals that this is at least partly true. Goldman has recently let a few employees go for taking jobs at private equity and hedge funds—although the total number fired is probably quite small. Maybe just three or four.
This isn’t really all that shocking.
Goldman hires analysts right out of college for two-year stints. It requires them to sign contracts that, among other things, stipulate that they won’t pursue opportunities outside the bank for the first 18 months of this period. First-year analysts who interview with private-equity shops and accept offers violate this contract. When they are caught, they get fired.
This happens ever year, at every bank. Although one source says it may be happening more than usual this year, as private equity firms have become a bit more aggressive about hiring, and pay continues to be depressed at investment banks.
Goldman takes these contracts very seriously—and with good reason. It’s junior investment banking people are often working on deals with private-equity firms on the other side of the table. You don’t want them working across from their future employers—or the rivals of their future employers. The contractual prohibition is meant to avoid this kind of conflict of interest.
After 18 months, Goldman has usually formed a view of the analyst’s future at the firm. If he or she is going to score an offer to stay at the firm, this is communicated. If not, the employee is free to seek employment elsewhere. Those employees are removed from some of the most sensitive work. It’s basically a six-month severance package, which is pretty generous.
The employees who are landing PE jobs in the first year, unfortunately, are probably extremely well-qualified. Some of them no doubt hope to take the job as a form of insurance. If they get the offer from Goldman, then they might stay (although, these days, maybe not; the private-equity gigs have better upsides). If not, then they have a position lined up.
The most disturbing part of the story, however, is the allegation that Goldman has been calling up the funds and asking who has offers. This seems a bit overly aggressive. And it seems that it must involve at least a bit of subterfuge: The funds probably aren’t purposefully exposing the young men and women they are looking to hire to Goldman’s wrath.
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