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Private Equity Firms in a Frenzied Race to Hire Young Investment Bankers

They are only in their early to mid-20s, but some young bankers on Wall Street are the most sought-after financiers around, with lucrative pay packages dangling before them.

Junior investment bankers who graduated from college only last year are being madly courted by private equity firms like Apollo Global Management, the Blackstone Group, Bain Capital and the Carlyle Group in a scramble that kicked off last weekend. After back-to-back interviews, many are now fielding offers for jobs that won't start until the summer of 2016.

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This process has become an annual rite by private equity firms, which raise money from investors (like pension funds) to buy entire companies. But it has grown more frenzied since the financial crisis, and it started this year weeks earlier than many in the industry had expected. Fearful of missing the best talent being developed at investment banks, the giants of private equity have turned Wall Street's white-collar entry-level workers into a hot commodity.

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"It's as if these were star athletes," said Adam Zoia, chief executive of the recruiting firm Glocap Search, who helps private equity firms hire young workers. "The irony is they are professionals six, seven months out of undergrad. It's hard to imagine you can tell if someone's a star or not."

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For the young bankers, who are known as analysts, the recruiting race is an important step on a journey to becoming a Wall Street tycoon who can command a seven-figure (or more) pay package. These workers, graduates of elite colleges, often hope to spend two years at investment banks, learning the basics of corporate finance, before leaving for private equity firms, where they can use those skills to make investments. That career path makes them prime candidates for an elite business school, or something even more financially rewarding.

Even though these youthful analysts are starting at big Wall Street firms, the sector's reputation has lost some of its sheen since the financial crisis. At the same time, Silicon Valley is luring away talent.

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But private equity firms can offer higher pay to young bankers. A private equity associate — one who is just three years out of college — can earn as much as $300,000 a year, including salary and bonus. That is roughly double what a second-year banker might earn at Goldman Sachs. "Private equity is the preferable place to be in terms of compensation," said Jeff P. Visithpanich, a managing director at the compensation consulting firm Johnson Associates.

While data is hard to come by, a December report from Vettery, a start-up recruiting firm, said that private equity was the single most popular destination for Wall Street's junior workers. Roughly 36 percent of junior bankers with two-year contracts in 2012 have now joined private equity firms, compared with 27.5 percent who stayed in the same division at their bank, Vettery said.

It may seem surprising that these untested financiers are being so heavily courted when the overall unemployment rate of workers between the ages of 20 and 24 in January was more than twice as high as the rate for those 25 and older.

But the process of hiring these workers has grown only more frenzied since the crisis, as financial firms increasingly believe they must work harder to attract ambitious graduates. The banks, from which these workers are being poached, are raising salaries or offering additional days off in an effort to retain them.

Private equity's recruiters, trying to secure the best workers for their clients, have helped accelerate the interview timeline, so that it is now the norm to interview workers about 18 months before their jobs will actually start. Some private equity executives say this means the candidates, who have barely encountered their first Wall Street deals, are performing more poorly in interviews.

Participants liken the situation to what is known in game theory as the "prisoner's dilemma," in which a lack of information causes private equity firms to act according to their own self-interest rather than find a solution that would be mutually beneficial to all parties. Last year, the process started in late February — weeks earlier than the cycle in 2013.

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"There's essentially always a handful of firms that are the catalysts, and that creates this huge domino effect across the industry," said Morgan Halberg, a partner at the recruiting firm Dynamics Search Partners. "Every other firm essentially mobilizes and has to be reactive."

Many participants traced the beginning of this year's process to a move by a midsize private equity firm in San Francisco. The firm, Golden Gate Capital, extended a handful of offers to young consulting firm employees on Thursday, according to people briefed on the matter who were not authorized to speak publicly.

This alone was not enough for the rest of the industry to spring into action. Golden Gate, which has a close relationship with the consulting firm Bain & Company, was not drawing from the investment bank pool where the big private equity firms fish. What's more, Golden Gate's internal rationale was that it was responding to moves by other private equity firms to hire consultants. At first, rival private equity firms and their recruiters decided to stand down.

But on Friday, an email circulated through the industry from a Boston-based private equity firm, Advent International, which said it would begin interviewing candidates from investment banks, people briefed on the matter said. The biggest firms knew they could not afford to wait. Recruiters contacted young bankers Friday night, instructing them to show up for interviews on Saturday and Sunday.

That led to a weekend of sleepless nights and back-to-back interviews for the would-be hires. In a reflection of how early the cycle began, the Blackstone Group, which had started some interviews on Sunday, was in the middle of recruiting interns for this summer. Golden Gate, now feeling pressure from other firms, told at least one candidate to respond to a job offer by Sunday, shortening the deadline from this Wednesday.

Many had expected this process to start in early March, or late February at the earliest. But by the beginning of this week, some of the biggest firms had already extended offers for the summer of 2016.

Recruiters have been working for months leading up to this point. Last fall, they began collecting information on fledgling banking analysts, and they held introductory meetings in November. Some private equity firms held informal conversations with candidates in January or even created spreadsheets that ranked candidates before their interviews.

Hardly anyone has a complete picture of what's going on, least of all the junior bankers being recruited. That has presented an opportunity for Wall Street Oasis, an online forum for finance workers, which last year released the first edition of an exhaustive guide to the recruiting process, complete with sample interview questions and financial modeling tests.

The second edition came out late last month, just in time for this year's process, said Patrick Curtis, the founder and chief executive of Wall Street Oasis. The e-book package, which costs $300, has sold more than $150,000 worth of copies across the two editions, Mr. Curtis said, adding that its success has inspired an expansion plan.

"We were pretty surprised with how big a demand there was," Mr. Curtis said. "We're actually trying to do something similar for the hedge fund industry now."