How would you answer if you were asked: of the big three financial employment categories of hedge funds, private equity, and investment banking, which of the three is now above where it was in 2008? Below are the results.
The results show that private equity employment is the only one of the three that is in positive employment growth territory compared to January 2008. Overall, since January 2008, private equity industry employment is up about 1.5 percent, while over the same period hedge fund industry employment is still down 1.7 percent and investment banking industry employment is still down 4.5 percent.
Are you surprised?
Here is more detail on the performance of private equity industry employment. The figure below shows that, since 1990, the private equity industry has experienced two severe employment recessions, the 2001 to 2003 recession and the 2008 to 2010 recession (the count could be three if you count the minor slowdown from 1994 to 1995).
Interestingly, the recession from 2001 to 2003 was worse than the 2008 to 2010 recession. The drop in employment from 2001 to 2003 represented a private equity employment drop of about 10 percent, or about 3,400 jobs.
In contrast, the employment drop from 2008 to 2010 represented a decline in private equity industry employment by about 7 percent, or about 2,500 jobs.
In looking only at the most recent recovery, the private equity employment recovery has been generally smooth, as is shown in the following figure. Interestingly, although generally on an upward trajectory, employment in the industry generally experienced a setback in September, while summer months experienced greater gains. This could be due to summer interns joining private equity firms and then leaving to go back to school when school starts in September.
In addition to the general observation that employment in the private equity industry is recovering and soon to reach its all-time high, it appears as though employment growth in the industry is accelerating, as is shown by the black trend lines in the following figure. As a note of explanation, the argument that employment in the industry is accelerating is due to the slope of the black trend lines. Essentially, when the slope of the trend line is higher, employment is growing faster (i.e. accelerating) compared to a previous time period.
What is causing the private equity industry to outperform competing financial sectors?
Industry observers have various reasons; here are a couple. First, the private equity industry tends to have investor money tied up for a longer time period than the other two, making private equity perhaps more forward-looking and less volatile than investment banking and hedge funds. This observation is furthered by the fact that private equity tends to have a reputation of being more industry and company-stage specific compared to the other two.
Second, the private equity industry is under less regulation pressure than the investment banking and hedge fund sectors (Dodd-Frank, Basel III, other reporting requirements). Overall, private equity employment continues to be the best performing category of the big three financial employment categories, with employment in the private equity sector now 1.5 percent above where it stood in January 2008. In comparison, hedge fund employment is still 1.7 percent below its January 2008 value and investment banking is 4.5 percent below its January 2008 value. Absent downside economic risks, the future looks bright for the private equity industry.
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