What next for PE pros?

With the private equity industry looking less alluring day by day, we’ve spoken to a few junior private equity professionals who are looking for an exit. Trouble is, private equity isn’t the easiest industry to get out of.

The main reason for sticking around is carried interest, only paid once a fund closes every six years or so. Formerly offered only to partners and other senior staff, it’s increasingly being trickled down to more junior types.

“Carried interest is being offered a lot earlier than before, to people well before partner level,” says Christopher Kirkness, a private equity-focused consultant at headhunter Whitehead Mann. “It means people don’t really leave a private equity fund voluntarily.”

“It’s quite a sticky market,” confirms our private equity insider (who wants out). “It’s not impossible to move – we haven’t got as much tied in as the guys at the top, but the options for moving within the industry tend to be limited anyway.”

Why move now? Firstly, there’s the little issue of risk aversion. Last week Kohlberg Kravis Roberts failed to sell 5bn of senior loans to fund its purchase of Alliance Boots; and Chrysler suspended a 5.9bn debt offering related to its takeover by Cerberus Capital Management. We haven’t seen quite such pressing problems in Europe yet, but Marek Gumienny, managing director of Candover, was quoted in the Financial Times last week as saying the European market has peaked and deal volumes are likely to fall from a record €62bn (US$85bn) in the second quarter.

And then there’s the gnawing feeling that private equity funds aren’t quite as cutting-edge as they once were. “Hedge funds tend to be a lot more flexible on how they can do deals,” says our insider. “They can take positions in quoted stocks and they can offer debt – they can do an awful lot of things that appeal to people doing more traditional private equity work.”

So what’s a footloose PE professional to do? One option might be to go and work for one of the companies the fund’s invested in – except the pay’s comparatively atrocious. The other obvious alternative is hedge funds, but shifting into hedge funds might not be quite as easy as hoped. We spoke to one hedge fund headhunter who says she’s never yet moved anyone out of private equity. And David Durham, managing director of hedge fund-focused search firm Durham Consulting, says going from PE to hedge funds is likely to be easiest early on when you’re a mere number cruncher. Later in the game, he says private equity pros are best off moving to hedge funds that have private equity arms – but that sounds a little like going from the frying pan into the fire.