As we approach the end of the first quarter, we have noticed that M&A advisors are back in action and business is reactivating. Banks are adjusting to the new tax regulations and are dealing with the fact that they lost or let go of many people last year. Now they are recruiting again and are feeling the stress of the shortage of people.

We have seen evidence of this in the significant increase of base salaries, especially for the associate pool. Many banks have readjusted their base salaries to guarantee a minimum fixed income. We were surprised to see increases of 23% to 75% for 1^st year, 2^nd year and 3^rd year associates, respectively.

The bonus range has also increased at this level. Associate bankers are receiving bonuses from 90% up to an unprecedented 230%. Of course the range varies from bank to bank, but the reality is that they are trying to make sure that their associates do not suffer from the new tax regulations and are not only readjusting the base salaries, but also bonuses.

The way bonuses are structured is also changing. We are finding out that some banks are paying partly in cash and partly in long-term stocks at the associate level, which we had previously seen only at more senior levels. The cash component ranged between 65% to 75% and the stocks had a vesting period of 3 to 5 years.

Interestingly, associates acknowledge that they are an asset that is now scarce, especially the good ones. And even though their bonuses were part in stock, they are feeling very pleased about their new compensation levels.

So how does this affect the private equity firms?

Some of our clients have had to adjust the salaries for their private equity professionals, in particular if their staff had backgrounds at the highly paid banks and have ex-colleagues whom they might benchmark against. Private Equity firms are interested in retaining their talent, but they had to deal with the fact that in many cases the new salary structure for banking associates is overlapping some of their more senior professionals'. The challenge will be to either find the perfect balance of salary increase for junior hires without an overlap with senior professionals’ compensation, or to adjust salaries at all levels at the firm.

Having said this, this year we might be experiencing a tendency of base salaries increasing at associate levels and above, something that we have not seen in the previous years.

If you are interested in discussing this in more detail please contact us on 0207 747 7882

Maria Nieto – PER

Did you know that women represent half of all professionals entering finance, but by VP level the proportion has dropped substantially?   Is this the same for private equity?   The answer is yes – but from a lower entry base so the problem is magnified.    We’ve done some counting and whilst approximately 25% of junior private equity professionals are female* this proportion reduces to 10% by investment director and above.   You might ask - does it matter?   Well it should.

There are sound economic arguments for maintaining a good diverse mix within your team.  But the issue here is not so much accepting that diversity matters, which I think most people do, but focusing on the lack of upward movement or fall out that happens before the senior levels are reached.   Arguably you are losing some of your well trained skill base before you can really capitalise on all that input you gave in those early years.  And it is not all to do with leaving to have children.  It’s a bit more complicated than that.  There are real issues of women leaving to have families and then not being able to get back on the ladder. There also seem to be issues related to promotion and progression within the firm.

And the issues lie on both sides – the employer and the employee. 

For the private equity employer that wants to retain and promote its female staff the sorts of issues that it may need to tackle include:

·         Those difficult to eradicate unconscious biases and under the surface issues where unspoken and unconscious prejudices still exist.  For example an unconscious bias that might inhibit the promotion of women is how work is allocated to them.   Do you put your female team members on the most visible, promising investments? Or is there an unconscious bias that pushes them towards less high profile projects that might need a lot of attention but are not so well recognised when it comes to considering who makes it up the greasy pole

·         In order to recruit more women and retain them in the business you may have to positively discriminate – but a positive discrimination culture is not easy to achieve. It means saying things like it is ok for the main child carer in a family (usually the woman) not to participate in so much travel but that this opt out is not acceptable for other team members with children 

·      It requires real recognition of the struggle to juggle home and work and the support that is needed from the employer to do that without falling into the trap of unconscious bias or discrimination

And for the female team member there are also a number of fundamental issues they have to deal with when taking a maternity break or aiming for high level promotion

·         The psychological contract with their employer needs managing - they may feel they have to choose between a career sacrifice if they want to manage a family or a home life sacrifice if they want to manage a career (recognising that many men in the workplace have to make home life sacrifices to succeed).

·        There is a lack of confidence in dealing with the issues – it is easier to just quietly go away than fight a culture which will judge them – whatever their choice.

Can any of this be dealt with?

Well I think the best phrase I heard recently to answer this was

“If you do what you’ve always done you’ll get what you’ve always got”

The traditional approach to dealing with these issues on both sides has been to try to minimise them –  ie sacrifice your home life if you want a long term career in this industry and hide the struggle to juggle. But by changing perspective to recognise the differences that your female workforce represent rather than trying to suppress them can achieve positive long term results.

If you can be prepared to: 

·          Embrace the differences in the workforce not try to minimise them

·          Positively discriminate,  differentiate and change your approach

·          Bring issues out into the open and discuss them

·          Create some guidelines and communicate them

·          Think about how you staff high profile projects

·          Use the appraisal process objectively for promotion management and career development and

·          Provide peer-to-peer and mentor support

You can retain that lost talent and gain a committed, loyal and efficient senior member of the team.

It’s not easy – but there is a lot of talent going to waste – and with a general shortage of highly talented people – that seems a shame.  

*We did a web based count focusing on the larger private equity employers and looked at their team profiles by gender

Gail McManus - PER

The most common intangible request for personality style or characteristic that we see and hear is – we want a team player.  But what does it mean?  Is it another of those we’ll know it when we see it characteristics or is it something we can measure and objectively look for.  Here is a Google inspired definition of a team.  Teamwork is a joint action by two or more people, in which each person contributes with different skills and expresses his or her individual interests and opinions to the unity and efficiency of the group.

I take issue with the requirement for a team of different skills in private equity – it might be a good idea but we rarely see it in practice.  Most of the people that we hire for private equity firms are pretty much the same as everyone else in the firm – same background, same style, same outlook.   So they aren’t often bringing different skills and whilst they have a view, their opinions are probably pretty much the same as everyone else’s in the team.  And three times out of four when we are asked to recruit from a different background to bring some balance, you still revert to the same profile you’ve always gone for.   Why? Because you can better judge the usual profile than a different one and fit doesn’t usually feel as good. So, as a general rule, I don’t think that our clients are hiring for difference, but for fit. 

So I found another definition which I find more appealing for private equity:  a person who can function effectively as part of a group of individuals sharing information and striving towards a common goal. I like this better. One of a group of individuals.  Most work in private equity is done as an individual – you have to work on your own - even when contributing to a deal team you will be doing your bit on your own.  Rarely does the whole group work together on something.  And to work effectively as individuals – you need a common goal or there would be chaos. The common goal is crucial and comes right back to leadership and communication within the business.

So how do we find these individuals who can work on their own towards a common goal?   We look for evidence of working effectively on their own and communicating with others, whether in the work place or in team activities such as sport.  In the work place they are going to be the high performers – that usually means they achieve as an individual and stand out from their peers.  So how can we then tell that they aren’t just single minded operators who achieve alone – or even at the expense of others?  Understanding their interests can help here. Team sports are good – and rowing and rugby are probably the most common sports on the CVs of those people we see hired.     What I like about all serious sports people is that they have had to dedicate time and commitment away from their main daily activity to succeed.  It helps show that intangible characteristic of ‘going the extra mile’.  So whether a team sport, a marathon runner, or grade eight piano - it takes effort.   But what I like about team sports such as rugby above marathon running is the confrontational element of the sport.  You have to take people head on and not waver in your resolve.  A good character strength for negotiation.  And what do I like about rowing?  Well, you have to get up early in the morning for a start and you compete against yourself as well as others with a firm resolve to win on both occasions.   And in both sports, not only is there a common goal but communication of your intention with others is key.  In most sports you have to take some personal pain whether physical or in terms of commitment and that makes a strong set of characteristics for the individual team sport of private equity.  

Gail McManus - PER

Throughout 2009 we experienced a visible increase in the demand for IR professionals, fund raisers and placement agents.  Our clients were keen to strengthen their IR teams and bring the right people and skills on board to manage the tougher and more demanding investor landscape.

For many GPs the IR team carries a wide range of responsibilities from fund raising to reporting as well as PR and marketing. These wide ranging elements of the role demand an almost endless list of skills; from extensive contacts and networks and great communication skills to high levels of attention to detail and accuracy.   Thorough understanding of the industry and investors demands, ability to write reports to tight deadlines, preparing PPMs and marketing documents, delivering smooth running road-shows and high quality investor meetings … Oh and if they have liaised with PR agencies, can write a great press release and get the managing partner in to see a few Middle East families – well that would be great too! and the list goes on…

But there are really two distinctive functions we see within IR teams and before deciding to recruit, it is important to understand which you really need. Do you need to focus on existing investors? Or do you need to raise new funds?  Or is it both?  Can one person do it all?  Generally the skills required for these two important tasks are different and you may need to decide which is your priority.

To manage existing relations, you need to look for someone with strong communication skills particularly written skills who is also numerate and can understand the investment process. They will spend a lot of time producing and updating reports and presentations.   These candidates generally have excellent project management skills, are detail oriented and accurate.   They may come from client services, marketing or RFP teams within asset managers, financial PR firms, project management teams at a placement agent or other IR teams.

When it comes to fund raisers, well the key is the deepness and relevance of their network, their understanding of the product and their flexibility to travel and/or be on the road most of the time.   In addition to in-house fund raisers, we generally find these people in placement agents, institutional sales teams within banks and asset managers and sometimes private bankers.

And, they have to be someone you trust, want to work with and are happy spending hours in an airport lounge with.   You will probably spend more time with the lead members of this team than with any individual on your investment team.

Today more than ever an IR team has become a core asset. Successful teams are more structured, reporting more detailed and contact with investors more regular.   Funds are hiring more experienced fund raisers, people with a distinctive track record and network fully relevant to their strategy.   In 2009, over 20% of PER placements were IR professionals from associates to principals, and signs indicate that the trend will continue well into 2010.   

If you feel your IR or fund raising team needs reinforcement or you are building one for the first time, don’t hesitate to give us a call.

Debbie Eidelman - PER

A job spec can be an invaluable tool to help focus your recruitment on what really matters to you – right from the start of the search.

It doesn’t need to be a formal written document. An informal discussion with your recruiter in which you lay out the description you need can be equally effective. The main benefit to a job spec agreed with your recruiter is that it provides an objective measure throughout the recruitment process. Until you’ve sat down and made a list of the key criteria – the must haves and the would likes, it can often be difficult to picture your preferred candidate, both for you and your recruiter.

For analyst and associate recruitment – where the number of candidates which meet the general requirements is broad – this is especially important. On first thoughts your needs may appear universal and easily identifiable – e.g. good training in investment banking; exposure to private equity transactions; a commercial mindset; good modelling skills. But you might be surprised by just how specific your needs turn out to be once you and your recruiter start putting them to paper. And it is crucial your recruiter understands these needs to identify just the right person for you.

Think about what this person will be doing and how you expect their career to develop with you. If you’re recruiting to fill a two year analyst position, you’ll probably want to focus on the technical skills they’ll mostly employ – they need to be able to hit the ground running. If you’re thinking long term, then perhaps a few gaps in their current skill set might not be an issue, provided they demonstrate the longer term potential to grow within your business.

It’s a question of recruitment objectives.

The value of the job spec lies in your ability to track your thinking. After meeting a tremendous candidate everyone in the team likes, it can be tough to step back and assess honestly if they’ve ticked all the boxes you need. This is where the job spec is invaluable. Did they have the LBO modelling skills you decided from the start were essential? If not, they probably aren’t the right candidate for this position, no matter how much you liked them. It’s a valuable objective measure and allows you to benchmark effectively.

And not just your candidates. Equally an agreed job spec is a powerful tool to ensure your recruiter is identifying the right people. The more specific the requirements you list, the easier it is to judge if they’re finding candidates with the particular skills you want. There can be less room for misunderstanding and time wasted reviewing CVs or interviewing candidates that just aren’t quite right – both your time and the recruiter’s. It’s a fine quality control. You might even want to define a successful recruitment process by percentage of relevant high quality candidates interviewed, rather than simply placement itself. You might be surprised how well or otherwise the process is working. You’ll soon tell if the relationship with your recruiter is what you would expect it to be.

When you have a recruitment need, you have probably already decided whether to retain one firm or work with a handful of firms on a contingency basis. Why? If you have a relationship with a recruiter who has been consistently successful, you’ll be confident to retain them. But if you were disappointed last time you recruited, you will be knocking on other doors to see who else is out there. Last year we started relationships with tens of new clients, many of whom had been disappointed with their previous providers who were not delivering at the speed and quality required.

We understand why this has happened. In 2009 PER had twice as many candidates for half the searches as compared to 2007. In this market, employers work hard to retain their star employees and the number of jobseekers is exceptionally high. So sorting through the talent pool to identify the best potential investors for private equity and venture capital needed muscle and expertise. PER interviewed a record 2,200 candidates exclusively for private equity roles. About 1,000 of which were investment bankers, 850 were private equity professionals and 290 were strategy consultants. With this kind of candidate volumes in the market, you might conclude that finding great candidates should be an easy task. Finding stars is never easy – but by having the capacity to deal with that volume we were able to sift and screen for the best.

When to retain?

When choosing your recruitment strategy, think about the following:  

Only retain when you have the certainty that your recruiter has exhaustive market coverage. Think of the size of the candidate pool and ask your recruiter:

·     What percentage of the suitable candidates do they already know?

And

·     How many they can interview within a two month period?

Not many firms have the muscle to interview hundreds of banking candidates for a search. If you use a firm which does not have the capacity to cover the market you risk only tapping into a fraction of the candidate pool.  So you may well feel the need to use more than one recruiter on a contingency basis.

Contingency recruitment works well for roles where no one recruiter can give 100% market coverage, such as Analyst and Associate roles. You only pay the firm that makes the placement. The pitfall of contingency is that the process can get messy. Some of the same candidates talk to different recruiters and in some cases end in a fee dispute. Also, the need for speed means that a significant portion of the market will become aware that you are hiring. You will be flooded with interest by other recruiters and candidates approaching you directly, the confidentiality of your recruitment process might be compromised and the administration will become a headache. If you are going to use a number of contingency firms then follow a few simple rules.

·     Set a deadline

·     Ask for their five best candidates.

The main benefits of a retained search or working exclusively with a recruiter are that you will save time, have your recruiter do the legwork and most importantly your chances of success are significantly increased.  It is in the recruiter’s interest to keep you happy and look after you, when they work on a success only basis then you are a much lower priority.  When you retain you can have peace of mind that you are not missing anyone because they are keeping you informed about their pre-screening and coverage of the candidate pool. Also, you don’t pay a penny more than in contingency and have the guarantee that significant resources are being committed to speed and success. The risk for a retained search is that you limit your market coverage. It can be a lengthy process sometimes and if you discover you have selected the wrong firm to do the search, you have already sunk the costs of the retainer which is not refundable. 

So PER recommends the following approach:

1) Use contingency recruitment with a maximum of two experienced recruiters for entry level roles where the candidate pool is in excess of 500 people (ie. roles where you need bankers or consultants with easy-to-find language or industry skills).

2) Use retained search for entry level roles where there is a requirement which limits the candidate pool to under 50 people. You need one firm to have the disciplined approach to guarantee you did not miss anyone.

3) Use retained search for experienced professionals where you benefit from getting thorough screening, reports and references.

If you want to find out more or need advice on how best to approach your recruitment needs, please contact me on 020 7747 7885.

Most firms have experienced this at some point: the candidate looks great on paper, they interviewed well, had all the right skills and seemed to fit in well with the team. But a few months down the line, you realised their heart wasn’t really in it. So they leave, or lose motivation then leave or lose motivation and stay (which can be worse) – leaving you in the lurch for months before you find a replacement.

In this economic climate, search firms and employers need to be especially diligent in finding candidates with the right motivation for joining them. At the moment there are candidates who are more likely to want any job, rather than specifically the job with your firm. 

So how do you find a “Mr or Mrs Right” – how do you hire the right candidate who really wants to work for you (for the right reasons) and will stay with you?

There are a number of ways in which you can screen for the right candidate. 

If you are working with a search firm, it is massively helpful to allow the Consultant working on your role to meet with at least one member of your team. This enables the Consultant to find candidates

·          whose long term career goals or aims are approximately aligned with those of your firm

·          with a close fit in terms of the skills required to do the job

·          and with the desired personality traits which are likely to fit into your company culture. 

When you start interviewing candidates, there are a number of questions you can ask to ascertain whether candidates truly want to join you.

Example question 1: ask the candidate “If you were offered a role with company A, company B or company C, which would you choose and why?” Make sure that one of the companies is similar to yours. If the candidate states that the company they would prefer is the one that is most similar to your firm, then this is a positive sign. If the candidate hasn’t heard of company A, B or C, it’s an indicator that they may not be committed to private equity as a career. 

Example question 2: ask the candidate  “Which other firms have you applied to and which have you interviewed with?”  If they don’t want to disclose the names of the companies, ask them what other types of roles they are considering. If the candidate says that they are also considering a wide range of other roles (such as equity research, teaching, advertising), then dig deeper to understand their motivation behind each choice. They need to have good reasons behind their choice of private equity.

Example question 3: ask the candidate what they know about your firm and why they want to work for you. Ask them who your competitors are. How is your firm different or similar to others?  

A lack of detail when answering such questions can be a giveaway that the candidate has not done much research on your firm and the role, and hence is less interested in it/you. A slight caveat here is that if your firm publishes little or no information about who you are and what you do, and generally keeps a low profile, then a lack of detail in a candidate’s answer can be understood, to a degree. 

Example question 4: ask the candidate where they want to be in five years time.

If the answer is “I want to run my own business”, for example, then dig deeper, they are less likely to stay with your firm, and could potentially be distracted by other projects.

A note about body language: If you ask the candidate why he or she wants to work for your firm, it’s worth noting their body language. Look out for whether their body language is congruent with the words they are saying. For example, if a candidate says in an upbeat tone of voice “I would love to join your firm”, but is leaning back in their chair, slightly slumped, he or she might be tired or have a back problem, but it’s more likely they didn’t really mean it.  Bear in mind that when reading body language the context needs to be considered; just because someone scratches their mouth or touches their face after saying something, doesn’t necessarily mean they are lying – they could just have an itch. Natural introverts may not display enthusiasm in such an animated way when compared to someone more outgoing. Take the context into account. 

Look out for gestures that are incongruent with what the candidate says. Specialist interrogators use a technique called “baselining” whereby they observe someone’s natural behaviour (ie ‘natural’ clusters of gestures displayed by a person in certain situations) and look for deviations from this.  Whilst we don’t recommend you go this far, you might, for example, observe how they react and the level of enthusiasm they display when talking about their personal interests and compare this with their reaction to questions about their motivation to work for you. Trust your intuition or gut instinct about whether a candidate truly wants to join your firm for the right reasons. You will unconsciously pick up signals when a candidate is being honest about his or her motivation and if they are right for your firm.

PER visited the leading business schools across Europe this autumn, including INSEAD, LBS and IESE, and some interesting themes have emerged. With all the uncertainty in the global markets and lack of M&A transactions in the past two years, there has been a flight to enrol in MBA programmes and there will be a talent bulge coming out in 2010 and 2011.

We were pleasantly surprised to find that the PE clubs at all the business schools are thriving with record attendance. Interest in PE has rarely been higher as an increasing number of strong candidates consider private equity as a serious option, given that the traditional routes of investment banking and strategy consulting are limited. The major benefit to recruitment in PE today is that top calibre MBA candidates with backgrounds in consulting and industry are much better educated on the private equity sector than before.

So what impact has this had on the chances of finding good candidates at the business schools? There is talent to be found, but the pool of star candidates with suitable backgrounds is still limited. 

Spotting the top performers with good transaction exposure and relevant industry experience is a major challenge year on year. Many of the 2010 MBA class did not work on a transaction in 2008. And an MBA candidate with a lack of deal experience will not meet your expectations compared to MBA candidates from previous years.

Another theme counting against MBA recruitment is a long familiar one: the best candidates already have offers from either their employers who sponsored their MBA, from banks or consulting firms who offer early in the year or from their internships. The best candidates will always have options.  You may need to consider paying sign-on bonuses to help with student loans as many of the leading banks and consulting firms do. Simply put, they’re more expensive to prise free.

On the bright side, now may be a good time to pick up associate and mid level stars with prior PE experience. The 2009/10 classes contain some impressive candidates who applied for their MBA in the better times of 2006/07 when it was unimaginable they wouldn’t find a new position on graduation. These candidates did two year analyst programmes in leading funds and were highly regarded with good transaction experience, but with headcount at a premium, there simply hasn’t been a chance for them to return.

They’re having to keep their options open and many are considering something a bit more entrepreneurial or in a different part of the market – perhaps at a smaller deal size.  These could provide some useful experience.

At the beginning of the year, with all the uncertainty in the market, analysts and associates from banking became more and more interested in making a quick move into private equity. They fell into two groups: the ones that were genuinely interested in private equity, and the ones that saw private equity as an escape route from the crisis within their banks.

During this turmoil, the banking teams experienced a decrease in work activity, which combined with several rounds of redundancies made candidates more and more uncertain about their future and prompted them to become more open minded about their career options.

Salaries and bonuses were also uncertain. The market was predicting that it might be one of the lowest paid years in a long time. So in the first half, with limited work to do and with more time on their hands, candidates found themselves with the motivation and availability to interview for a new role.

As a result, banks saw a further outflow of people that had chosen to leave their teams as well as the earlier redundancies, and coinciding with an increasing feeling that the market was picking up again, the summer marked a clear shift in attitude.

Investment banking teams decided to give special attention to retaining staff.  Analysts and associates were given salary increases, with special attention being given to the middle levels, and workload increased. As a result they were getting increased exposure to transactions again and with limited numbers on the team, having to work very hard. The candidates that remain in each of the teams have become the “survivors” giving them confidence in their position within the bank.

So suddenly, the motivation and availability to interview for a new role changed.  Mid-year bonuses were not as low as expected and there is the expectation that year end bonuses given to associates will not be as low as they thought. The teams have more work and candidates are getting more exposure and more challenges.

The reality is: since the end of the summer, there are more opportunities for analysts and associates in private equity but less availability and willingness of the candidates to move. Star candidates are receiving multiple offers. Other stars prefer to hold on to their jobs for a while and gain more experience rather than move into a market that they perceive is still recovering.

What does this mean for your analyst and associate recruitment programme?  You may need to adapt to the new scale of salaries, recognizing that for many of the candidates, base salaries have increased by up to 20%.  Secondly, be willing to give a high level of involvement and exposure and make sure that this is communicated within the recruitment process. And lastly, move quickly. Once you find a star candidate, there is always the risk of losing them to the competition or to internal promotion.

Contact me if you would like to know more about the compensation increases we’re seeing and other remuneration benchmarks. maria.nieto@perecruit.com

The Financial Times this week www.ft.com has some major comments on the upturn in banking sector recruitment – headlines such as ‘Headhunters set for wave of mandates’ and ‘Goldman bucks trend with hiring spree’ give optimistic messages to would be recruits.  Some commentators believe that the teams were pared back too much and that they will need to re hire.  This all fits in with the trends we have been seeing for star banking analyst and associate level candidates.  But not so much with more experienced professionals.  The demand for experience seems to be at a low. This seems a shame as there is some super experience out there in people who would contemplate a more flexible way of working.  And you could benefit from their skills in a time efficient and cost effective way.

We see experienced investors contemplating a number of opportunities

The least likely outcome for these people seems to be more of the same. And most of the experienced investors we see rarely want more of the same and are looking for a new set of challenges. They consider with relish the prospect of working with an investment house that focuses on smaller deal sizes - it takes them back to what they used to do and why they came into private equity in the first place. You could access their experience in a full time partner role, use their track record in fund raising and strengthen the senior group or use them on a part time or advisory basis.

This serial role route gives you opportunity to access resource on a project by project basis or as an advisor, mentor or investment committee member or to focus on a particular portfolio issue or opportunity.

There is a stunning amount of talent locked up in experienced investors which could be tapped into in so many ways to help your fund be more successful.  And yet so few funds take advantage of it.

I hope the private sector private equity community learns from this and grabs some of this extraordinary talent for itself.  There are some great professionals out there who can make a difference very quickly.