Private equity in a pickle

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Once the career of choice for investment bankers eager for carried interest, private equity is suddenly looking vulnerable. Don't count it out just yet, though.

On one hand, the prognosis isn't great. Figures from Dealogic suggest leveraged buyouts fell by two thirds between January and March, and dud investments whose debt exceeds their value are back on the scene.

The industry's great and good have also started making ominous rumblings. At an awards ceremony last week (reported on by Financial News), the esteemed Joseph Rice III, chairman and founder of US buyout firm Clayton Dubilier & Rice, apparently said that although job losses have yet to hit PE funds, " shouldn't be long."

David Giampaolo, chief executive of Pi Capital, argues that private equity is a good career option in these uncertain times: "Most private equity funds have a 10-year lifespan and you're not subject to huge outflows or redemptions as in other asset classes like hedge funds and equities."

Last week's news that private equity funds are buying $12bn of cut-price leveraged loans back from Citigroup underscores the fact that funds still have money to invest - and their willingness to use it in unexpected ways.

Investment bankers appear just as eager to work in private equity as ever. John Coyle, former head of the JPMorgan Chase US financial sponsor unit, defected to the industry last month, following in the footsteps of UBS AG, Bear Stearns Cos. and Citigroup according to the Wall Street Journal.

However, moving into private equity is likely to be harder than it was. Operational improvements are the new watchwords and recruiters say funds have less need of bankers' skills. "The emphasis over the past five years was on deal origination, leveraged finance and structuring skills, leading private equity funds to hire people with an investment banking background," says Chris Kirkness of search firm Whitehead Mann.

He adds: "Funds are now turning their attention to optimising returns on their portfolio companies - and that means hiring people with business operations experience instead."