What's happening, who's hiring, and how much are they paying in the world of leveraged finance?
What's the temperature?
Cooling fast. After years of scorching temperatures, leveraged finance recruitment looks set to hit a mini ice age. "There's no hiring in leveraged finance," says Lee Thacker, partner at search firm Heidrick & Struggles, who specialises in placing senior leveraged financiers. "The credit crisis has closed the market for now."
Recruiters confirm banks' ardour for junior leveraged financiers is rapidly chilling too. "Most leveraged finance teams have been hiring opportunistically for analysts and associates, but one or two teams are now starting to put a hold on hiring until they see how credit markets pan out," says Jim Nairn, a consultant at recruitment firm Cornell Partnership.
The only ray of warmth may come from mid-market leveraged finance teams, which are still hiring according to Justin Hams at recruitment firm Healy Hunt: "Hiring has picked up in the mid-market teams and leveraged funds working on deals worth less than 500m."
In the mid-market, recruiters point to the likes of Merrill Lynch, Citi and Allied Irish, and to leveraged funds like CapVest and Oak Hill Advisors; Calyon hired six mid-market leveraged financiers in May.
Other banks which have been reputedly hiring (until recently) include Lehman Brothers, JPMorgan, Deutsche Bank, Barclays Capital, HBOS, and HypoVereinsbank. There's also HSBC, which three months ago hired Jackie Allen from Royal Bank of Scotland to help build its leveraged finance business; plus BNP Paribas; Bank of America; and Bear Stearns, which relocated senior US leveraged finance banker Mark Goldstein to London in June to help build its investment banking and leveraged finance business in Europe.
Credit-focused hedge funds such as US-based Magnetar, which has just set up a London office, have also been in the market for London-based leveraged finance types.
Who are they hiring?
With most senior positions filled in late 2005 and 2006, demand this year has been all about juniors. "The market has been very busy and unless you have got the guys who can do the modelling and the pitchbooks to support the originators, you aren't going to be able to bid for and close deals," says Hams.
Why are they hiring (or not)?
2007 began well and got even better before worsening. European leveraged finance deals totalled US$53m in January according to information provider Dealogic; they rose to US$90m in March, fell to US$19m in June, and dwindled to a microscopic US$7m in July.
Any slowdown in hiring can also be attributed to the little matter of US$500bn of debt that information provider Dealogic says is left on banks' balance sheets globally. For example, the eight banks selling 9bn worth of loans related to the purchase of Boots by KKR are reportedly having problems placing around 5bn of it.
There's also a seasonal aspect to the current freeze. Any leveraged financier resigning now isn't going to start in a new role until at least November - enough time to make a dent on the balance sheet of banks reporting in December, but not long enough to positively impact revenues.
How much are they paying?
After a year to 18 months in a leveraged fund, one recruiter says you can expect to earn 45k to 50k in base salary, plus the same again as a bonus. In a bank, he says bonuses are likely to be around 50% at the same level.
Last year a vice president (VP) working in leveraged finance at a US bulge-bracket house would have earned between US$600k and US$1m, according to a leveraged-finance headhunter. And Heidrick & Struggles' Thacker says managing directors in leveraged finance were on anything from US$2m to US$4m. With banks having problems unloading the debt languishing on their balance sheets, pay this year will be significantly lower: "There's going to be some pain in places," he predicts.
Citi's leveraged financiers could be particularly stung. Financial News cites a report from analysis firm CreditSights, which puts Citi's balance sheet exposure to leveraged loans at anything from US$22bn to US$27bn, against US$12bn to US$17bn at JPMorgan.
Unless banks can offload that US$11bn of debt sharpish, not great. Albert Edwards, analyst at Dresdner Kleinwort, was quoted last week in the Financial Times saying that the current situation bears strong parallels to the collapse of the first leveraged buy out boom in the 1980s. It took around a decade to recover.
One recruiter discloses that he personally would discourage friends and family from going into leveraged funds: "They've staffed up, staffed up, staffed up - and at some point all these guys will be let go."