Private equity has long been the holy grail of financial services careers. This may be changing with today’s revelation that Guy Hands is so stuffed he’s having to sink £20m or one fifth of his personal wealth into Terra Firma in the form of guaranteed bonuses to stop people leaving, but still.
According to our own figures, from jobs posted on eFinancialCareers, private equity hiring is hot. In March 2012, we were advertising 36% more private equity jobs than we were in March 2011. This would seem to indicate healthy recruitment.
Private equity headhunters confirm that things are moving. There is hiring. However, the hiring that there is may not be for the right reasons.
Rather than an upsurge in investment opportunities, fund raising and optimism, recruiters say private equity funds are mostly hiring to replace former lifers who’ve realised they’re never going to make any money where they are, and are therefore moving on.
“There’s definitely been an increase in private equity hiring,” says David Howell of EM Group. “There seem to be quite a few people coming onto the market – either they’re deciding it’s not for them and that they can’t make it work at that fund and they’re not going to make any money for some time, or they’re deciding to move into something else.”
"The opportunity cost of moving jobs in private equity is much lower than it used to be," says Logan Naidu, Managing Partner of recruiters The Cornell Partnership. "Many funds are under water and people are starting to realise that their carried interest is largely hypothetical. As a result there are a more investment managers and investment directors going from PE fund to PE fund than in the past.
"There are an increasing number of conversations with candidates who say they don't mind leaving £100k on the table - if they make the right move and can make £5m over the course of the lifecycle of a more successful fund, it's nothing in the scheme of things," Naidu adds. "Conversations and people moves are a lot more strategic than they used to be".
This appears to be what Guy Hands was afraid of.
The Financial Times says Hands has already dismissed half the investment team at Terra Firma and that the 70 remaining employees are his favourites. However, the fund is underwater and senior staff have little prospect of earning carried interest.
Hence Guy has had to pay them guaranteed bonuses out of his own pocket. £20m divided by 70 people amounts £286k each. Whether this will be enough to buy the loyalty of people who were expecting to earn millions is open to question.