Morning Coffee: The 22 year-old bankers quitting to earn $300k. Innovators escaping into the sunset

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It’s not just Christmas that gets earlier every year – this year the private equity recruiting season has begun in the same week as Halloween. The Wall Street Journal reports that buyout firm Thoma Bravo LLC made offers at the weekend to first year analysts at a number of Wall Street banks, who will complete the program then start up in private equity land in 2020. This opened the floodgates and everywhere from Blackstone Group, Apollo Global Management,Carlyle Group and TPG promptly did much the same.

This has raised a few eyebrows for a variety of reasons, not the least of them being that the talented youngsters in question are being offered private equity salaries in excess of $300k, despite having only just figured out where the coffee machines are, let alone developed any meaningful track record of working on actual deals.

Private equity firms' enthusiasm for banking juniors is nothing new. The system whereby financial-sponsor clients are effectively allowed to free-ride off the bulge bracket’s ability to attract and recruit the top graduates from the most prestigious universities has been going on for years, with the banks in the position of being unhappy about it, but aware that there is little they can do.

Banks have at least tried to fight back. Most have made attempts to cut working hours, introduce better conditions for juniors and implement “fast track” systems to give the most talented hires more visibility about their promotion prospects, but the fundamental problem can’t be solved – there’s no such thing as indentured labour in banking, and the private equity recruitment process looks attractive to young graduates precisely because it’s a high-stakes competition just like the Wall Street recruitment process itself, and the elite university process before it.

At some point, though, surely the private equity firms themselves are going to start worrying about the extent to which they are reliant on the banks to channel the right kind of employees their way.  The investment banks themselves are in the early stages of trying to “stop the madness” when it comes to making early internship offers to students in their first year at university, but it remains the case that the 2020 private equity associate class will be made up of the 2018 investment banking analyst class, who received their offers on the basis of their 2017 summer internships, which they got after their 2016 internships, for which they could have been interviewing as early as the autumn of 2015.  In other words, the pool of talent was fixed at the age of 19 and everything since then has been a matter of boiling it down.

As a less publicly visible industry, private equity has less of a need to be seen to care about diversity than investment banking, but there’s a clear danger that at some point, you’re attracting people who are really ambitious and good at passing interviews rather than having any breadth of experience.  That danger becomes much greater when the offers are made without even the benefit of any real-world test of how the juniors have performed on a single live deal.

But it’s an arms race.  None of the private equity employers want to feel like they’re getting second choice, so when one starts to make offers, the rest feel like they have to follow suit.  Perhaps the only long term solution might be for bigger buyout players to show up on campus and run their own graduate schemes.

Elsewhere, on the tenth anniversary of the original Bitcoin white paper, Peter Stephens, the Head of Blockchain at UBS has left the bank to take a CIO role at a tech startup called DrumG.  He had been showing possible signs of discontent as long as a year earlier in an interview talking about the “hype cycle” and contrasting “the slow hard yards of making something work” with “pontificating in a conference and drawing Powerpoints”.  It’s hard to tell whether this move represents a failure of banking to adapt its culture to the technological world, or a failure of blockchain technology to deliver the goods, but there seems to be a bit of a trend here; several “heads of innovation” such as Elly Hardwick at Deutsche, Julio Faura at Santander and Alex Batlin at BNY Mellon have been moving back to Shoreditch from Canary Wharf.  There’s not currently much clarity over whether these roles are being replaced or whether the investment banking industry is beginning to quietly row back on the high profile investments made last year.

Meanwhile ...

Akiko Naka demonstrates that not all career paths are as simple as university to banking to private equity; after a job in sales at Goldman, she tried to make a career as a manga illustrator, before taking a job at Facebook and now showing up with a recruitment startup called Wantedly (Bloomberg via Japan Times)

One in three millennials talk about pay with coworkers, according to a survey from Bankrate, compared to one sixth of older workers. (Bloomberg)

Piers Constable, an MD at Deutsche in New York who has apparently taken business trips to over 60 countries, has the top tip of taking a morning run as the first thing in a new city to see sights you would otherwise miss. (Business Insider)

Standard Chartered has announced that it will unveil a new business plan  with its next set of full year results, turning it into a simpler and faster bank. This is likely to involve job losses, the CFO has confirmed.(FT)

A think-piece from fintech guru Richard Gendal Brown might explain why the investment banking industry’s blockchain projects have been so slow in delivering; they’re not engineered from the bottom up (Coinbase)

Richard DeVaul has resigned from Alphabet, after growing employee protests that he was continuing at the company after a harassment complaint was found to be “more likely than not”. (New York Times)

Barclays is seeking court permission to move $250bn worth of assets from its UK operation to its Dublin subsidiary, following the announcement last week that 200 jobs would be shifted. (Irish Times)

And UBS has recruited from Deutsche and Nomura to its financial sponsors team, perhaps showing that experience does count for something. (Financial News)

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