Disrupting the Norm: The Emergence of Analyst Programs in Private Equity Recruitment

The buyside recruitment process for a coveted Associate position at a private equity firm is highly competitive, placing significant strain on both firms and candidates, particularly when considering the on-cycle phenomenon. On-cycle refers to the brief one or two-week period during which private equity firms vie for top talent to form their associate cohorts. This process is characterized by its unpredictable and often premature timeline, resulting in a fierce battle for talent. As the on-cycle period continues to launch earlier and earlier, several consequences have arisen, and this article will delve into one of the most notable effects: private equity firms hiring their own analyst classes. 

Traditionally, the path for an aspiring private equity investor has been as follows: 

1. Achieve strong academic performance in university and secure an investment banking internship during your sophomore summer.
2. Complete your undergraduate degree, having already accepted a full-time job offer. 
3. Dedicate three years to your analyst program, while concurrently pursuing the ideal investing position. 
4. Begin your role as an Associate at a private equity firm and, after two years, pursue an MBA at a prestigious institution. 

Upon successfully navigating steps one through four, you have effectively triumphed in the race. The remaining decision involves determining whether you wish to return to your previous firm as a Post-MBA Vice President or leverage your highly transferable skill set to transition to another industry and/or role. 

Traditionally, firms followed a standard approach to retain top talent; however, recent changes have prompted them to reevaluate their strategies to prevent losing valuable employees.

Banks, for instance, have implemented two-year analyst programs featuring highly competitive compensation packages. The objective is to increase the conversion rate from Analyst to Associate and reduce attrition at the junior level by offering more attractive financial incentives.

On the other hand, buy-side firms have tackled the competition for talent by emphasizing internal promotions and establishing well-defined career paths. Consequently, there has been a decrease in the number of firms requiring an MBA for promotion to VP, as they prioritize fostering growth and development from within their organizations.

Retaining top talent is undoubtedly a challenge, but attracting these employees in the first place is another hurdle. The traditional on-cycle approach has been the go-to solution; however, private equity firms with the resources to train and HR teams to recruit potential new hires may consider alternative strategies. Some firms have begun to question the necessity of relying on the on-cycle process and have already created their own Analyst programs. By recruiting talent directly from undergraduate programs, firms can bypass the chaos of an outdated system (on-cycle) and secure top talent straight from the source. This direct recruitment approach has garnered increasing interest among private equity firms in recent years. 

Through our research, experience, and conversations with professors at leading undergraduate business schools, we have witnessed a significant increase in the number of firms hiring Analysts directly from university (some examples include: Atlas Holdings, Alpine, Apax, Bain Capital, BDT, General Atlantic, GTCR, Level Equity, Roark Capital, Silver Lake, Stone Point, Vista, and Warburg Pincus). This trend raises several questions about the implications for the existing associate recruiting process, candidates aiming for buy-side positions, and firms seeking top talent.  

Consider the following scenario: As a senior undergraduate student, you have recently completed a rewarding summer internship at an investment bank and are eager to transition to the buy-side after fulfilling your responsibilities in banking. Although you have secured a return offer, you receive an inbound from a private equity firm to be considered for an Analyst role within their organization. Faced with this opportunity, do you choose to directly pursue the buy-side position or adhere to the traditional path by starting in investment banking and pivoting later down the road? 

PRO: Accepting buy-side over banking

• On-cycle process doesn't allow for delayed decisions; you'd likely be recruiting for a buy-side role before finishing training or fully participating in deals anyway
• If investing is your long-term goal then you can bypass the competitive on-cycle process and mitigate any potential risk of not receiving an offer down the line 
• Gain exposure to the deal process from day one and learn directly from experienced investors 
• Recruitment is often managed by the firms themselves rather than headhunters, resulting in a less hectic and more streamlined process 

CON: Accepting buy-side over banking 

• The proven process demonstrates that an investment banking Analyst position can lead to a buy-side role, so trusting the system could land you a dream job at a firm that doesn't hire Analysts 
• The experience gained in banking is invaluable, fostering personal and professional growth as a future investor 
• A broader skill set can be developed in banking leaving more options open if you decide the buyside is not for you after a year on the desk 
• The training program is a known quantity at investment banks so can feel confident that you will walk away technically sound with significant deal reps 
• Committing to an investment strategy too soon may lead to a poor fit, making it more difficult to pivot to another firm later on 

Ultimately, it is important to understand that just because something has been done a certain way in the past, it does not mean it will remain the same in years to come. Buyside firms strive to hire the best talent, and while on-cycle recruiting has historically been the preferred method, it may not be the only or the most effective approach for every firm in the next 5-10 years. One increasingly popular alternative is to implement a dual track recruiting strategy that involves creating an analyst program and then complementing it with candidates from investment banking or consulting. The fact that firms continue to hire a large number of analysts suggests that investing in undergraduate talent with the expectation of them becoming future associates is a sound strategy. 

Thus, if you are presented with an Analyst position offer from a private equity firm, the decision to accept it will largely depend on individual circumstances and preferences. It will be interesting to observe whether this approach becomes the predominant route to buy-side recruitment in the coming years, potentially rendering the on-cycle process obsolete.