Banks Fight Back Against Private Equity Talent Poaching

Major banks have grown increasingly frustrated with the trend of private equity firms poaching their talent. This issue came to light when executives at JPMorgan Chase noticed an unusually high number of absences during the mandatory training program for junior analysts. The reason behind these absences was that new hires were skipping their training sessions to attend interviews with private equity firms, despite having only recently joined the bank.

This practice, known as "on-cycle recruitment," involves private equity firms hiring investment bank analysts for positions that typically start one to two years later. The early recruitment efforts by these firms have left banks disgruntled, as they invest significant resources in training junior employees, only to see them leave for private equity firms immediately after completing their training.

Goldman Sachs has become the latest bank to take action against this talent drain. The firm plans to require new analysts to prove every three months that they are not actively seeking employment elsewhere. Previously, JPMorgan Chase had threatened to fire employees who accepted job offers from other companies.

These developments raise the question of whether this controversial practice is finally seeing a reversal. Despite years of efforts to curb it, the practice has persisted. Following JPMorgan Chase's new policy, some private equity firms have heeded the warning. Apollo Global Management informed potential candidates that the company would delay its recruitment, stating that it is too early for students to make career decisions just days after starting a job. Insiders revealed that General Atlantic and TPG Inc. have also paused their recruitment for the class of 2027.

Historically, investment banking analyst programs have been seen as a gateway to high-paying careers on Wall Street. However, in recent years, many analysts have opted to join private equity firms immediately after completing their training, attracted by higher compensation and the perception of less grunt work. Banks have made various efforts to retain their talent, including promising better work-life balance, guaranteeing weekends off, and increasing salaries. They have also taken more aggressive measures, such as attempting to prohibit first-year investment bankers from communicating with recruiters from other companies. However, these efforts have often been met with resistance from analysts who ultimately ignored the policies.

This situation is complicated for banks because private equity firms are among their largest clients. The concern over conflicts of interest arises because junior bankers, while preparing for future roles in private equity, still handle confidential information from their current employers. The CEO of JPMorgan Chase has described "on-cycle recruitment" as unethical, stating that it puts young people in a difficult position and creates conflicts of interest for the banks.

This sentiment resonates throughout the industry. When Apollo announced that it would not interview or extend job offers to the class of 2027, its CEO expressed that making career decisions before fully understanding one's options is not beneficial for either the students or the industry. A recruitment firm in the investment management sector noted that these changes would provide candidates with more time to prepare and consider their options, leading to a more thoughtful recruitment process.

In 2010, private equity firms typically waited until junior bankers had completed about 11 months of training before recruiting them. However, this timeline has been steadily decreasing. The pandemic further accelerated this trend, allowing junior employees to conduct interviews from home without detection. In some cases, private equity giants have started recruiting junior employees within a month of their training commencement.

The intense competition for talent has led to some humorous anecdotes. A recruitment firm specializing in placing investment bankers in private equity roles recalled an instance where a banker conducted a Zoom interview from a stall in the office bathroom. While the private equity firm saw this as a positive sign of the candidate's enthusiasm, the banker ultimately did not secure the position.

Despite the allure of high salaries and the potential for significant earnings through carried interest, the reality of long working hours and delayed financial rewards in private equity firms has led some to caution against viewing it as a panacea. The recruitment practices of private equity firms mirror those of banks, which historically conducted interviews for potential interns a year or more in advance, a practice that drew criticism from university officials.