Not long ago, it was the career of choice for the young and upwardly mobile. How quickly things change.
"This industry tends to attract bright, ambitious, entrepreneurial people," a principal at one leading US fund tells us. "As they sense the ultimate end-game is getting further away, you will see more of these people leaving to do something else."
The 'ultimate end-game' in private equity terms is becoming a partner in a (preferably) large fund. Partners are entitled to hefty slices of the carried interest paid out on funds' profits, often amounting to many millions a year.
The trouble is that after years of a) recruiting juniors, and b) retaining partners who were loath to quit while the going was good, private equity doesn't have enough mid-ranking positions for its acolytes to move up into: "Very few of the partners who enjoyed spectacular investment performance over the last four years have voluntarily retired," says Chris Kirkness at headhunter Whitehead Mann. "That may change over the next couple of years if investment returns dip, but the process is always going to be painful," he adds.
Although mid-market private equity deals remain robust, the outlook for larger deals is likely to stay dire for the next 10 months or so. While bankers in June were waiting for the next $100bn private equity deal, the Economist in early October quotes the head of one US bank who says it's hard to imagine anything bigger than a $10bn deal well into the next year.
Matters aren't made any better by the possibility that the government will this week announce an end to the taper relief which has reduced private equity funds' tax burden. A survey of 79 private equity chiefs by accounting firm Grant Thornton found 50% of them expect recruitment to get harder if tax advantages disappear, according to the Financial Times.
If the pain becomes too acute, private equity's appeal is liable to go into more serious remission. In 2002 and 2003 there were rumours of funds clawing back carried interest from employees to compensate for subsequent losses. Headhunters say it could happen again: "Once returns have reached the hurdle rate of around 8% some carry can be paid out," says one. "But part of that will often be put aside and then withdrawn if results turn negative."