How JPMorgan's crackdown on private-equity recruiting could play out for junior bankers, PE firms, and more
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- JPMorgan is warning incoming bankers about taking "future-dated" jobs with private-equity firms.
- Junior bankers who disclose jobs that create conflicts for the firm could lose their employment.
- Here's what the crackdown could mean for junior bankers, the PE recruiting cycle, and more.
JPMorgan Chase is shining a spotlight on an unusual recruiting practice that seeks to poach its youngest talent for jobs that won't start for two years — forcing it and other investment banks to act as a training ground for rival employers.
In communications to incoming investment-banking analysts, America's biggest bank by assets addressed the notorious ritual of buy-side recruiting. In a practice unique to Wall Street, private-equity and other investment firms reach out to first-year investment-banking analysts to woo them with offers for lucrative jobs that start at a future date, usually in two years. While it's become a hallmark of the junior banker experience, it can also prove a nuisance for both the banks and their newest hires — disrupting their jobs and even their job training.
Now, JPMorgan is imposing new rules for those employees who choose to participate.
"We understand that the practice of interviewing and accepting a role at another firm has accelerated and is happening even earlier in your career with us," JPMorgan wrote to new bankers in a communication shared by the Litquidity account on Instagram and others on social media this week. (A person familiar with the message confirmed its authenticity to BI.)
"This puts undue pressure on you and puts us in a difficult position, too," the bank continued, adding: "We cannot take on client business where there could be a conflict of interest. If you accept a future-dated offer of employment, you have an obligation to disclose that acceptance to your manager immediately. This could impact the projects that you are staffed on so that the firm can properly manage any potential conflicts."
Finally, the firm added: Accepting a job with a PE firm while holding onto their banking jobs "could result in us reconsidering the status of your employment."
JPMorgan's message has become the talk of Wall Street as everyone from recruiters to junior bankers tries to figure out what it might mean for them. According to one leading buy-side recruiter, the bank's ominous line about potentially firing bankers who have taken future-dated gigs risks plunging the private-equity recruiting apparatus into chaos. It could also increase the employment allure of the boutique banks, a former junior banker suggested.
Here are 4 ways JPMorgan's missive could impact Wall Street, from private-equity recruiting to junior bankers who fear of losing their jobs and more.
Bankers with hush-hush PE jobs are in a tough spot
The bank's message about mitigating and preventing conflicts of interest seems sensible enough. It's simply asking workers with future-dated job offers to do the ethical thing and disclose them to avoid actual or potential conflicts of interest. But JPMorgan's warning that coming forward could get one fired leaves junior bankers in a damned-if-you-do-damned-if-you-don't scenario.
"It puts you in a really bad position if you're a junior banker who has accepted a buyside offer," said Anthony Keizner, co-founder of Wall Street search firm Odyssey Search Partners, adding, "If you're a young banker who's just done oncycle, do you just try and not tell the bank?"
Bankers who get fired stand to lose their private-equity job offers, too. Those offers are usually given with the expectation of having two years of training and deal experience at an investment bank.
"There's a reason that PE jobs are post-dated, because of the firms' capacity and pipeline planning and needs — but it's also because they want you to be trained and have deal experience before you come," Keizner said.
The suggestion that young bankers could be fired for disclosing their future-starting private equity jobs could encourage the opposite of transparency, he said.
"It's more likely to bury these issues or make someone less forthcoming," said Keizner. "This seems to, I think, cause more confusion and concern than clarifying or allaying any fears."
This could be the 'nail in the coffin' to on-cycle recruiting
The first wave of private-equity recruiting is known as "oncycle," and it has become increasingly chaotic and stressful for junior bankers as firms start the process earlier each year. The oncycle-recruiting process has been kicking off so early (it took place in June this year) that buy-side firms are often hiring candidates with zero deal experience. In some cases, it's turning off newbie bankers, as BI has previously reported.
"There's been pressure on oncycle, and I think this will further weaken its importance because of the effect that it will have on worried bankers who have enough to do in their days without having to worry about potential legal implications and employment curtailment by their banks," said Keizner.
"I think probably the biggest impact is going to be on current bankers and prospective bankers," he said. "It's turning up the issues that relate to this on-cycle process, and frankly, this email is potentially another nail in the coffin of oncycle."
"I think it will make candidates even more reluctant to interview for roles in such a long-dated fashion and make them more likely to say, 'I don't know where this is going, but this sounds like a legal and employment mess so I'm going to keep my head down, do my first year, and then I'll look for opportunities for a sooner start or an immediate start.'"
Other banks are likely to follow JPMorgan's lead if they haven't already
As exemplified by virtually collective return-to-office mandates following the COVID-19 pandemic, Wall Street tends to move in packs when it comes to employee policies. So the impact of JPMorgan's missive will also depend on whether others follow suit.
"I haven't seen other banks come forward with something that is so clear," Keizner said. "It'll be interesting to see if other banks follow suit or if this really is just a JPMorgan thing."
A spokesperson for Goldman Sachs told BI that the firm has had a similar policy to JPMorgan's in place for more than a decade, requiring analysts to disclose future offers of employment. A spokesperson for Citigroup said the bank does not have a policy similar to JPMorgan's in place. Spokespersons for other banks, including Morgan Stanley, Bank of America, Deutsche Bank, and Barclays, either did not respond to or declined requests for comment on their respective policies.
Boutique banks could become even more attractive
Boutique banks have become an increasingly attractive place for junior talent — and JPMorgan's potential new policy could give them yet another leg up.
One former junior investment banker who started working in private equity this year said smaller boutique banks tend to be more accepting of their young talent participating in buy-side recruiting.
"The bulge brackets are just so backwards with this stuff," this person said. "I can get the compliance and conflicts aspect of it, but it's just not that big of a deal."
They added that at the boutique they worked at in New York, senior staff were actively supportive when analysts would go for private equity interviews and land offers.
"They actively want their analysts to go to the client side because analysts are basically the clients of tomorrow," they said.
They added: "I'd put this in the bucket with backwards thinking that the seniors at these firms have. It's all power and ego."
Do you work on Wall Street? Contact these reporters. Emmalyse Brownstein can be reached via email at ebrownstein@businessinsider.com or the encrypted app Signal at 305-857-5516. Reed Alexander can be reached via email at ralexander@businessinsider.com or SMS/the encrypted app Signal at 561-247-5758.
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