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What if buy-side jobs aren't so safe after all?

Private equity associates are next in line for the chop

If you're a junior investment banker and you're not feeling a little bit worried about your job in 2023, you're probably endowed with abnormal optimism. But if you're a private equity junior who expects the future to be shiny, you're probably just normal. - Private equity funds don't usually cut jobs. 

But it does happen. And it may happen in 2023. 

When things go wrong, funds chop jobs just the same as any other employers in financial services. Just look at SoftBank's Vision Funds, which cut 30% of their jobs in September as the value of the technology firms they invested in plummeted. At one point, the Vision Fund was one of the hottest employment tickets in London: juniors from Morgan Stanley, Goldman Sachs and elsewhere were queuing up to join. Many were presumably let go.

Could the same thing happen across the private equity industry? Maybe. Headcount at buy-side firms has risen dramatically in recent years. Blackstone, for example, doubled its London headcount during the pandemic. Apollo Global doubled its headcount between 2017 and 2021. Bloomberg says there were more private equity buyouts in Europe in 2022 than in any year since 2007. It sounds a lot like a peak.

Bankers who've moved to private equity firms may, however, be protected by two things: firstly, funds always run their investor teams lean; secondly, private equity is a long game. 

"Private equity has long term capital with fees generated over a period of 10 years," says Charlie Hall at recruitment firm PER. "This makes it predictable and means that I don't foresee cuts beyond the normal churn of people." Anthony Keisner at New York search firm Odyssey Search Partners agrees: “PE firms are unlikely to announce big layoffs, if they are still deploying capital," he says. However, Keisner also suggests that it won't be easy in private equity next year: "You’re seeing instead gradual attrition through fewer people getting promoted, less MBAs hired back, and funds applying performance standards more rigorously and actually letting some weaker performers go."

Where both men think things could get much worse in PE, is if fundraising dries up. If underperfoming funds can't raise new funds, Keisner says layoffs could become widespread. Hall agrees: PE firms haven't overhired for the current market, but if they can't raise new funds they might have to rethink, he says.

All things being equal, juniors are likely to be safest in the big US funds next year. Armed with dollars, they're better placed to sap up bargains - particularly in Europe. However, the situation could change if the collateralized fund obligations many US funds have created turn out to be less stable than hoped. 

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AUTHORSarah Butcher Global Editor

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