Private equity has long been an appealing option for investment bankers seeking a new challenge.
As well as the chance to become very, very rich through share options, there's the freedom to invest large sums of money. The working environment also tends to be more informal than in a bank.
Last year strong demand for people in London meant that moving from top tier investment banking into private equity was a very real possibility. Employment in private equity companies soared, much of it driven by the demand of internet companies for venture capital.
Firms either new, or new to Europe, were the biggest recruiters. Large US funds such as Kohlberg Kravis Roberts, Thomas Weisel, JH Whitney and Hicks Muse Tate & Furst have all set up European offices in recent years. Investment banks were a valuable source of new blood.
"We recruited 60 or 70 investment bankers into private equity firms last year," says Guy Townsend, a specialist in private equity recruitment at Walker Hamill. David Thorp, chairman of the British Venture Capital Association estimates that there were 1,200 people employed in the sector in 1998. Today that figure is more like 1,800.
But after a bumper year last year, private equity firms are hunkering down.
The collapse of the internet sector has a lot do with it. As well as reducing investment opportunities, it has made private equity companies keep a closer eye on how the firms they invest in are managed.
So instead of dealmakers, the search is now on for people who can work with portfolio companies to create strong returns. That makes investment bankers less attractive as employees, as many lack management skills.
This year, Townsend expects to recruit fewer than half as many investment bankers as last year. Moreover, most will go into junior analyst or associate level positions. Opportunities at the top have all but dried up.
While he placed 20 senior investment bankers from vice-president level or above into private equity positions last year, in 2001 Townsend doubts that he will place even two. "It's never been easy for senior people from investment banks to move into private equity. But last year it was at least feasible," he says.
"Private equity firms have gone back to looking for people already in the industry," says Simon Mee at headhunters Russell Reynolds.
Mansur Khawar at Armstrong International adds: "Early stage firms right through to the big private equity houses are no longer so attracted to pure financial professionals or management consultants.
"What are now needed are people with sector knowledge. Every private equity firm is looking for 'killer managers' from the corporate world who can actually make the asset work. People who have taken a company in the past and have restructured it to deliver shareholder value" .
Joe Haim at headhunters Egon Zehnder confirms this. "'Killer managers' have become crucial. The funds that do best over the next few years will be those able to enhance the value of their assets in what may be a difficult time. The people that can do that, the killer managers, come from the corporate as opposed to the financial world."
Bankers looking for a move into private equity may find it necessary to put their departure on hold. Quite how long for is anyone's guess. The industry undoubtedly still has strong growth potential.
"Private equity hasn't really got started yet in Europe", says John Logan at the Pinnacle Group, a leading private equity recruiter in the US.