Wall Street bosses want junior bankers to come clean about PE jobs. It won't be easy.
Big banks are cracking down on junior bankers with covert private equity jobs — but experts warn that their approach may drive secrecy further underground.
To guard against private equity firms poaching junior talent, investment banks are requiring analysts to disclose in writing if they’ve accepted future-dated jobs. While each bank’s policy is different, juniors who confess to having a PE job may be terminated, moved to another team or division, or taken off certain deals — consequences that could encourage ambitious young bankers to clam up and undermine banks’ efforts to retain them.
“These are smart people. Their cognitive calculus is always working,” said Maurice “Mo” Cayer, an organizational psychologist and lecturer at the University of New Haven. Young bankers facing termination for accepting PE jobs might think, “If I get caught, I’ll lose my job. Well, I’ll lose my job anyway,” Cayer added.
The banks declined to comment.
Redeployment could also backfire if the moves are viewed as demotions.
“As long as they’re still doing the job they were hired for and they’re not relocating them to a different geography or a different vertical, that’s okay,” said Kate Morgan, founder and CEO of Boston Human Capital Partners, a talent acquisition and HR consulting firm. Anything short of that could result in bankers playing it safe, she said.
Even bankers who stay on the M&A track may have reason to worry, said Anthony Keizner, cofounder of Wall Street recruiting firm Odyssey Search Partners.
“The bigger thing that the bankers are worried about is if you tell them you’re leaving, then you’re less likely to be considered for the most high-profile deals, and it could affect the way you’re rated, and it could affect your bonus,” he said.
Meanwhile, the attestations don’t seem to be deterring young bankers from their buyside ambitions, according to Keizner, whose recruiting firm has surveyed about 1,100 first-year bankers in the past few weeks.
In describing the early findings, he said many of them are concerned about the situation and “unsure how to proceed” — but only “a tiny proportion” said they’re planning to not participate in PE recruiting because of policy changes at their banks.
Questioning conflicts
Banks have said the attestations are necessary to protect against conflicts of interest that can arise as a result of private equity recruiting tactics, which seek to hire junior bankers for jobs that won’t start for two years, after they have been trained by the banks. That means a junior banker could be assigned to work on a deal involving a future employer.
The people who spoke to Business Insider, however, questioned the ambiguity of this argument.
“What does it mean to avoid conflicts?” Keizner said, adding, “Say you accept a role at PE firm X. Does it mean you can’t work on something related to PE firm Y? Or can you not work on a deal for a company where PE firm X has a portfolio company that’s competitive to it?”
“Just because you’ve accepted a role at the PE firm in 18 months’ time, it’s not like you’re privy to their deal pipeline or you’ve got the team on speed dial,” he added.
Morgan also warned that prioritizing hard-to-control compliance issues could hurt retention.
“They’re going to always feel like the banks are now gatekeeping their ambition,” she said of junior bankers. “They are sort of saying, ‘we don’t trust you,'” she added of the banks.
A New York-based private equity employee who was previously an investment banker agreed that banks are sending the message that “analysts owe the firm their underlying loyalty.”
“To me personally, it wouldn’t mean anything,” she said, adding, “People will continue to recruit regardless.”
For now, banks don’t have much to worry about because private equity recruiting has largely stalled.
“I don’t think any of the participants nor firms know exactly where this is all headed,” Keizner said, adding. “Everyone is watching and waiting to see how the pieces will come together.”
When and if it resumes, the attestations could prevent some young bankers from participating, said Cayer.
“There are a lot of good Boy Scouts,” he said, adding, “They’ve studied hard. They’re conscientious people.”
“If the bankers won’t show up because they’re too scared or being seriously restricted from doing so — well that would be a big problem. That really would put a stick in the spokes of the system. But my sense is that we are not at that stage,” Keizner said.
“I think the bankers will still want to interview. The PE firms still want to hire,” he added. “Yes, it’s going a little later, but certainly based on what we’ve seen so far, it’s going to continue happening.”