Now is not the best time in recent history to work in banking. Recent weeks have seen CEOs from Jamie Dimon to Jes Staley bemoaning the effects of low rates in the U.S. and negative rates in Europe on their balance sheets. Last week's move by ECB head Mario Draghi to renew quantitative easing depressed the mood further. - Not that Draghi cares; he responded by simply saying banks should focus on cutting costs and digitising their businesses rather than “being angry about negative rates.”
While banks are fretting about their futures, the big private equity funds are busy disrupting their business models and hiring their staff. Talent has always flowed from banks to funds, but in the past year it has been flowing to private capital providers and buyout behemoths like Blackstone, KKR and Apollo especially liberally.
Take Blackstone. In the 12 months to December 31 last year, it hired 800 people globally across its four business segments. This included 225 people into its real estate business,170 people into its private equity unit (an increase of 62% on the previous year), a doubling of headcount at its credit business (which consists mainly of GSO Capital Partners), and the addition of 110 people (an increase of 67%) to its hedge fund solutions business. Blackstone didn't respond to a request to comment on all this hiring.
Blackstone wasn't alone. Rival fund KKR grew by 117 over the same period, but doesn't break out where those staff were allocated.
Funds have good reason to recruit. On September 11, Blackstone announced the closure of a $20.5bn real estate fund – making it the largest specialist property fund ever. Blackstone has aggressively expanded its offering under Jon Gray to the extent that assets under management in its real estate unit now exceed those in its traditional private equity business - $132.7 versus $130bn, but both are growing at breakneck speed along with credit and hedge fund services, which constitute the four segment that make up Blackstone’s business offering.
KKR, meanwhile, has built out a fully-fledged capital markets business under Adam Smith that provides loans, underwriting and pre-IPO financing to companies. According to FINRA, KKR Capital markets in New York now has 141 registered professionals with dozens coming from investment banks. Blackstone has made a similar move with Blackstone capital markets. In other works banks are being disintermediated and their people poached.
It's not clear where this all ends, but if you're in a bank and are wondering about a strategic move to protect your future, the implication is pretty clear. - Private equity funds have big pots of money, and they are growing. Banks, do not and are going the other way.
Photo by Eric Michael on Unsplash
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