Private fairness’s recruiting mania | USAEMALL.com

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And in case you missed it: SoftBank founder Masayoshi Son has floated the idea of creating a joint US-Japan sovereign wealth fund to make large-scale investments in tech and infrastructure across the US.

In today’s newsletter:

• Private equity’s scramble for talent

• Rating agencies get in a fight

• Readers write in on Ackman’s conglomerate

Can anyone stop the recruitment frenzy? 

New American college graduates have barely stepped off the commencement stage, diploma in hand, when Wall Street titans swoop in to recruit them. 

It’s a battle royale playing out across the country between investment banks and private equity firms with fresh grads at the centre.

Top banks such as Goldman Sachs, Morgan Stanley and JPMorgan Chase have long been known to lock down finance-focused college grads for analyst programmes.

These entry-level positions are considered premier training grounds for the next generation of Wall Street executives. Landing a job at one of these banks all but guarantees lucrative offers later on from private equity firms or hedge funds. 

But in recent years, these bank analyst jobs have been encroached upon, DD’s Ortenca Aliaj and Sujeet Indap report. 

Private equity firms such as Apollo Global Management, KKR and TPG are kicking off their recruitment processes ever earlier. Last year, the frenzied recruitment began in June after graduation. 

These firms have begun to tap promising recent grads for positions with a start date two to three years out. As a result, some of these college grads are starting their banking jobs with their next job offer already in hand. 

While these 22-year-olds have shown their devotion for Excel spreadsheets and discounted cash flow models, they have little real-world work experience beyond a summer internship or two. 

Some private equity firms, including Warburg Pincus and Silver Lake, have gone a step further. They now hire undergraduate students right out of school, competing directly with banks for collegiate talent.

Multiple people involved in the recruiting process told the FT they expected early recruiting to be more restrained this year. Both private equity firms and candidates are purportedly willing to wait until the autumn to make their decisions.

That hasn’t stopped everyone. The firm THL Partners has already begun its interviews, but rivals haven’t followed suit. At least, not yet. 

Rating agencies throw down

Fights are common on Wall Street. But among the usually staid credit rating agencies? Not so much. 

A rare dispute between rating agencies broke out last week after Fitch Ratings published a report based on a study that has since been withdrawn by its publisher. 

The report made the case that smaller credit rating agencies assigned more generous scores to private credit investments of insurance companies than the larger and more established ones.

There’s a steep pecking order among credit rating agencies, with Fitch Ratings, S&P Global Ratings and Moody’s Ratings by far the largest and best-known firms.

But when Fitch criticised smaller firms such as Kroll Bond Rating Agency for being too generous with its assessments of the private credit industry, the less established competitor didn’t sit idly by.  

Instead, Kroll accused Fitch of misleading market participants by relying on the since withdrawn 2024 study by the National Association of Insurance Commissioners to raise doubts about the quality of its ratings.

(It wasn’t just critical of Kroll, but also of other groups.)

Fitch stood by the publication, saying the insurance commissioner group had reached similar conclusions in prior studies. 

“If the [association] provides new information, we will update our analysis,” it added.

The unusually overt fight shows how fierce the competition is in the lucrative $1.6tn private credit industry, a notoriously opaque market that has a steep demand for so-called private letter ratings, which are needed when no public rating is available.

Lenders such as Ares Management and Blue Owl aren’t the only ones jockeying for market share. The groups that are paid to referee their creditworthiness evidently are too. 

Can Ackman build the next Berkshire?

Before Warren Buffett’s acolytes had time to process that the nonagenarian would be stepping down from his financial juggernaut, another investor set in motion his plan for a rival. 

Bill Ackman unveiled big plans a couple of weeks ago to turn the real estate company Howard Hughes Holdings into a modern-day Berkshire Hathaway. 

We asked DD readers to give their take on Ackman’s latest pitch, and some of you kindly wrote in with your two cents.

Ackman’s venture includes plans to build an insurance business and to snap up cheaply priced companies.

While some readers believe Ackman may have the investment chops to identify promising portfolio companies, they argue there are other — and potentially just as important — factors to Buffett’s success.

Berkshire has never regularly doled out dividends, and Buffett has only paid himself a nominal $100,000 annual salary. One family office managing director thought a deep trust from shareholders was needed to build anything close to Berkshire. 

“If you want to be the next Buffett (which I believe Ackman has alluded to and I believe he has the investment chops to be), it is not Buffett’s investment strategy (or holding company structure) that alone accomplishes this feat,” he wrote. “But rather his investor/shareholder strategy.”

That $100,000 salary built trust with shareholders, and in turn earned him a long leash to “go against the herd with greater financial security”.

James Lindstrom, the founder and chief executive officer at Verdian Insights, echoed that take. “At its heart, Berkshire wasn’t built on structure — it was built on trust,” he wrote.

The big takeaway from Berkshire’s model, the founder added, wasn’t just that he was able to identify good businesses. 

“It’s about the values embedded in how decisions are made, incentives are aligned, and leaders behave when no one is watching. That’s not something you can bolt on — it has to be built from the ground up.”

Job moves

• Paul Weiss partners Bill Isaacson, Jeannie Rhee, Karen Dunn and Jessica Phillips are leaving the firm to start their own litigation boutique, according to a person familiar with the matter. 

• Citadel Securities managing director of Asia-Pacific business development Jonathan Finney has left the firm, Bloomberg reports. 

Smart reads

Can’t keep up London was once a world leader for payments technology, the FT writes. Now, Britain’s fintech dream is faltering, and it risks falling behind.

Covid perks Private jet privileges, paid-for mansions and private security. Many of the perks the C-suite got their companies to bestow on them during the coronavirus pandemic seem to be here to stay, Lex writes.

Misleading metric The private equity industry still relies on the “internal rate of return”, University of Oxford professor Ludovic Phalippou writes for Alphaville. And it’s still bamboozling investors. 

News round-up

Private equity portfolios underperform at big Canadian investors (FT)

China pushes for mergers to create global banking and securities giants (FT)

Four former Volkswagen directors convicted over Dieselgate fraud (FT)

Canadian pension giant to invest more than £8bn in UK (FT)

Nike welcomes Dick’s Foot Locker deal as its grip on retailers weakens (FT)

Swedish start-up wants to tap into surging EU demand for TNT (FT)