Junior bankers still want to work in private equity: "I hate my life now. It's just a question of getting in"

Private equity funds are having a hard time. As Bain & Co. observed, it's become necessary for EBITDA to grow by 12.5% a year instead of by the historic 5% to generate a 2.5x return over a five year period. Not many funds are able to achieve this. Profitable exits are therefore harder to orchestrate. The Wall Street Journal reports that 4,000 private equity (PE) companies have been held for more than four years; 1,500 have been held for more than nine.

In the circumstances, you might think junior bankers' enthusiasm for PE would have diminished. 

Not so.

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As one junior banker told us earlier this year, the beacon of a private equity job is shining as brightly as ever. Maybe even more brightly.

"“I thoroughly hate my life right now. It’s just a case of getting in [to private equity]," one analyst at a top US bank told us. "All I'm doing is formatting slides and working towards fake deadlines. PE gives me a shot at a role with actual meaning. Where my work can actually count for something, rather than a shitty business development meeting that will head nowhere."

Given that some private equity juniors complain about the pointless modelling of target companies that will never be acquired, this may be a rose tinted view of life on the other side. But Rupert Bell, chief executive of search firm private equity recruitment, says junior bankers' demand for PE jobs is as strong as ever. "Working in private equity is still infinitely more attractive than being a banker, but the game got harder because you need to deliver much higher EBITDA growth," said Bell. "Funds need proper operators to do this and they're more likely to be consultants or people who've run businesses than resprayed bankers."

For junior bankers with PE dreams, there's also the issue of so-called "zombie" private equity firms, or firms which can neither raise new capital nor exit previous investments. Forbes listed 20 "zombie like" firms earlier this year. Many were stuck in prolonged fundraising; one had cancelled fundraising entirely. One said it was just raising money deal by deal.

Getting a job in private equity now may therefore be a hiding to nowhere. As New York private equity recruiter Charles Wilson observed earlier this year, "many private equity firms are dead already, they just don't know it." Their survival will depend on investors giving them more money, said Wilson. But many investors have no appetite for this. There are tales of limited partners (LPs) who invested in PE firms being forced to sell their houses and write down the money. Unable to raise investment, Per Franzén, chief executive of Sweden’s EQT, is predicting that 80% of funds will become zombies in the next five years. 

Even alleged zombie funds have work that needs to be done, though. Speaking off the record, one fund on Forbes' list informed us it's not a zombie and has been raising continuation vehicles to buy some of the assets of its existing funds. A zombie fund, "has not raised any capital, cannot raise any capital and is unable to exit investments," the fund said. Continuation vehicles that enable exits prevent zombies under this definition. "There is some confusion in the market." 

Continuation vehicles could themselves run out of road, though. Funds that "opportunistically raise continuation vehicles" are locked into an unsustainable business model, said Franzen. "At some point, these firms will cease to exist," he claimed.

With this in mind, junior bankers going into private equity are advised to do a lot of due diligence. One headhunter said private equity hiring is becoming a two way process with candidates interrogating firms. "You need to be cautious and selective," he said in reference to choosing an employer. "Ask what their investor attrition rate is, whether members of the team have left and why and whether they are raising a new fund." 

Some junior bankers may be hesitant about asking such challenging questions in interviews. Competition for private equity jobs, which involve shorter hours and sometimes higher pay than banking, is still intense. Earlier this year, at least two junior bankers were scammed by someone claiming to be selling information on a private equity interview process for $300. "Most people leave banking because it's so brutal, but also because all the good people leave and you stay you feel like you're a failure," says another junior banker. "Once you're in PE, you're at least working with the founders of firms." 

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