The apprentices(4)

As the school year starts again, a new cohort of MBA candidates flock to the halls of academia. Young professionals who have put themselves in debt for the next 10 years are made to understand fairly quickly that business school is certainly about higher education but also about understanding the hustle of the recruitment market.

The process starts within the first few days of term as headhunters start wining and dining the incoming class (with the exception of a few schools which can afford the luxury of not allowing recruiters on campus until the second semester of the year). For many, ambitions revolve around ultimately landing the highest paid employment possible. To that end, competition for private equity jobs is fierce, putting pressure on the students seeking them and on the MBA programmes, which need to show strong placement ability.

No candidate is likely to be admitted to the closed circles of elite private equity firms without boasting superior academic credentials. But increasingly, business schools are drawing elite students with the promise of getting placed in the private equity market.

In response to the resounding success of an industry that has exploded over the past decade, business schools have adapted their curricula, faculties, research departments and career services to meet the demand of students seeking entry to private equity. Yet the most vital question remains unanswered – to what extent can business schools help the private equity industry increase its supply of talented managers, and, reciprocally, to what extent can a business programme make a student seem the perfect fit for a private equity firm?

When KKR announced its landmark RJR Nabisco deal in 1989, there was hardly one business school class about private equity. Today, all the leading schools have developed specific programmes, classes, case studies and even sometimes dedicated research and teaching centres (see p. 82). Developing a private equity faculty is necessarily a costly endeavour for those schools which aim to attract budding private equity pros.

TOP OF THE CLASS
Business schools compete to develop the most innovative and challenging training and classes in the field of private equity. Those classes and electives have mushroomed both in size and number. In recent years, for instance, the “Venture Capital and Private Equity” class taught by Professor Joshua Lerner has consistently been one of the largest elective courses at Harvard Business School. Many programme administrators report that private equity classes can be as much as three times oversubscribed (a term the students hope eventually to become acquainted with on the fundraising trail).

Of the 25 institutions reviewed for this article, all offered a class or elective on private equity. In some respects, however, traditional classes on principal investing, which include a mixture of case studies, valuation exercises, negotiation workshops and industry research, are behind the curve. Certain schools have come to realise that their approaches to teaching private equity are insufficient to educate future top managers. Despite the revolution that the casestudy approach introduced a decade ago, there is today a need for a more practical form of teaching.

Wharton Business School, which is consistently ranked first by a well regarded Financial Times business schools survey, has started a “private equity boot camp” under the auspice of its leading private equity professor Stephen Sammut. The first edition of the camp launched in 2004 was a rigorous two-day off-site filled with over 20 hours of panel sessions and group workshops featuring top faculty and over 40 private equity professionals.

Along similar lines, the Tuck School of Business at Dartmouth University has also started field work in private equity coordinated by Tuck Center for Private Equity and Entrepreneurship. More generally, schools are beginning to incorporate practical training elements to their courses. The Sloan School of Management has started a lab in entrepreneurship in emerging markets. Similarly, for its emerging markets private equity class, Columbia Business School puts a great deal of emphasis on student projects, which have included starting a private equity fund in South Africa on behalf of a local investment bank, and the launch of a shipping company in the international orange juice market.

At INSEAD in France, the curriculum is very much oriented to stimulating the entrepreneurial potential of its student body. Aly Horma, the president of INSEAD's Private Equity Club, says each class is rooted in hands-on projects. He and a team of students recently organised the buyout of TelCo in Morocco, a project that will continue following graduation. Taking this hands-on approach a step further, the Yale School of Management has started its own student-run venture capital fund. Sachem Ventures' initial $1.5 million capital was provided by the Yale endowment and a local bank with a mandate to invest in new ventures in the local community.

JOB PLACEMENT
Many observers recognise that whatever the quality of the curriculum, the depth of the faculty and the calibre of the professionals taking part in the training, the nature of private equity is so practical that actual work and deal experience cannot be replaced.

As Dean Miller, a Wharton MBA graduate and former co-president of the Wharton Private Equity Alumni Network puts it: “Private equity is an apprenticeship business.” No amount of education can guarantee access to elite private equity firms. A powerhouse like The Carlyle Group, for instance, has no recruiting procedure on business school campuses. The firm opens annually just a handful of positions to post-MBA graduates which are generally taken by former Carlyle analysts. The Blackstone Group makes presentations to MBA students at just three schools: Harvard, Wharton and Columbia. In Europe, the only schools that tend to receive attention from top private equity firms are INSEAD and the London Business School. Although many more have dreams of private equity jobs, no more than 15 students secure one in each class of roughly 350 students at INSEAD.

As a result of this lack of outreach from the firms to the schools, a huge premium is placed on networks, acquaintances and business relationships. It is not unusual that a fund will make an offer to a management consultant that helped a portfolio company, or to an investment banker that assisted the fund through a corporate financing. Private equity funds are specialise in poaching people from other big firms rather than hiring directly from business schools. This saves on recruiting and training costs. As a result, jobs with some exposure to private equity funds are often taken with the hope that they will lead to a job at a private equity house further down the road.

A recent recruit at a new fund started by The Carlyle Group in New York says he was hired as part of a team from a large investment bank when his managing director was poached by Carlyle. He reports having been subject to just one informational interview. But he also concedes: “The truth of the matter is that my interview for Carlyle lasted five years as I was working as an investment banker getting experience and exposure to a variety of deals.” One thing schools excel at is building networks that last a lifetime. These can become precious stepping stones that will eventually lead to the ideal private equity job. Student clubs, associations and networks can play an important role in professional development.

ACADEMIC LINEUPA comparison of the world's top MBA programmes with private equity components.

SCHOOL MBA PROGRAMME LOCATION NOTABLE CLASSES
Columbia Columbia Business New York Private Equity and Entrepreneurship in Emerging
University School Markets, Private Equity Real Estate classes
through the Milstein Real Estate Center, Venture
Capital seminars, Entrepreneurial Finance
Cornell Johnson School of Ithaca (New York) Private Equity and Entrepreneurship, Venture
University Management Financing, Case Studies in Entrepreneurial
Financing, Venture Start-up, Due Dilligence in
Private Equity Investments, Advanced Private
Equity: Negotiation and Structuring
Dartmouth Tuck School of Hanover (New Field work in Private Equity, Private Equity
Business Hampshire) Finance.
Duke University Fuqua School of Durham (North Carolina) Entrepreneurial Finance, Venture Capital,
Management Mentored Study in Entrepreneurship, Venture
Capital and Private Equity
ESSEC ESSEC MBA Cergy, France
Harvard Harvard Business Cambridge Venture Capital and Private Equity,
University School (Massachusetts) Entrepreneurial Finance
HEC HEC MBA Jouy-en-Josas Cedex, Private Equity, Turnaround Management
France
IMD Very small, select pro- Lausanne, Switzerland Entrepreneurship and Family Business
gram of 90 students
specialised on leader-
ship building
INSEAD INSEAD Fontainebleau, France Private Equity, Venture Capital
and Singapore

NOTABLE PROFESSORSSTUDENT CLUBALUMNI NETWORKPaul Tierney (top private equityColumbia Private Equity Club.The alumni hall of fame speaks for itself:investor, founder of Aperture),Regular breakfasts and networkingHenry Kravis '69, Alan Patricof '57 ErskineMurray Low (Director of the Langmeetings with industry profession-Bowles '69, Russell Carson '67, LionelCenter for Entrepreneurship),als. Annual conference. DedicatedPincus '56Christopher Mayer (real estatepublication.expert), Glenn Hubbard (Dean andEntrepreneurial Finance Professor),Jeffrey A. Harris (venture capital),Scott M. Gallin (private equity)Joseph Bartlett (private equityOld Ezra Finance Club,Cornell Entrepreneur Networklaw), David Ben Daniel (entrepre-Entrepreneurship and Ventureneurship), Melvin Goldman (inter-Capital Club.national VC), John Nesheim (entre-preneurship)Colin Blaydon (private equity),The Tuck Private Equity Club, theThe Tuck Center for Private Equity andFred Wainwright (entrepreneurship)Technology Club.Entrepreneurship has gathered an impres-sive advisory board which is keen on net-working and opening its doors to students.William MegginsonThe Entrepreneurship and VentureExtensive alumni resourcesCapital Club co-organises theannual private equity summit.ESSEC Generation, ESSEC Ventures.The school's network is vast in French cor-porates and banks. But the school hasformed partnerships in Asia and is wellestablished there.William Sahlman (private equityThe Entrepreneurship Club withThe number of alumni heading privateand entrepreneurial finance), Feldaover 450 members is a forum forequity firms and the stature of the HarvardHardymon (venture capital), Paultesting ideas, the TurnaroundClub in New York make the core of theGompers, Josh Lerner (ventureClub, The VC & PE Club whichHarvard network. The Club remains thecapital)organize a well attendedcenter of high profile business networkingconference as well as numerousand its cosy dining area has been a deal-networking meetings.making venue for decades.Finance Club, EntrepreneurshipHEC has entered a partnership with SternClub.Business School at NYU and with theLondon School of Economics for a jointMBA called Trium which provides extraordi-nary exposure and worldwide networkingopportunities.Benoît F. Leleux (venture capital),No thematic club dedicated toThe network of the school is impressiveJim Ellert (family business)private equity yet some confer-globally and across Europe in particular.ences and networking events areThe local alumni clubs offer strong net-organised by the school and theworking oppotunities and 30 percent of theregional alumni clubs.alumni body exercises at Board ofManagment Committee level.Graham Wrigley, Philip AndersonINSEAD Private Equity Club.The majority of INSEAD students have a(entrepreneurship and VC),background in industries as opposed toChristoph Zott (private equity)consulting or financial services which cre-ates vast networking opportunities across awide array of industries. In addition, thereare over 600 alumni working in privateequity funds.SCHOOLMBA PROGRAMMELOCATIONNOTABLE CLASSESLondonLondon BusinessLondonMergers, Management Buyouts and OtherBusinessSchoolCorporate Reorganisations, Private EquitySchoolMassachussetsSloan School ofCambridgeEarly Stage Capital, Global Entrepreneurship LabInstitute ofManagement(Massachusetts)in Emerging Markets, Venture Capital WithoutTechnologyBorders, Entrepreneurial Finance, PrivateEquity/Venture Capital LabNew YorkStern School ofNew YorkEntrepreneurial Finance, Restructuring Firms andUniversityBusinessIndustriesNorthwesternKellog School ofEvanston (Illinois)Venture Capital and Private Equity Investing,UniversityManagementEntrepreneurial FinanceOxfordSaïd School ofOxford, UKPrivate Equity, Entrepreneurship andUniversityManagementTechnology VenturesStanfordStanford GraduateStanford (California)Private Equity Investing Seminar,UniversitySchool of BusinessEntrepreneurship and Venture CapitalUniversity ofChicago GraduateChicagoEntrepreneurial Finance and Private Equity,ChicagoSchool of BusinessFinance and Entrepreneurship In EmergingMarkets, New Venture StrategyUniversity ofWharton School ofPhiladelphiaVenture Capital and the Finance ofPennsylvaniaManagementInnovation, Venture Capital andEntrepreneurial Management, the PrivateEquity “Boot Camp”University ofMcCombs School ofAustin (Texas)Financial Strategies: Private Equity. TheTexasManagementHicks, Muse, Tate & Furst Center for PrivateEquity Finance supports development of aprivate equity finance curriculum.Yale UniversityYale School ofNew HavenPrivate Equity Investing, Venture CapitalManagement(Connecticut)and Private Equity InvestmentNOTABLE PROFESSORSSTUDENT CLUBALUMNI NETWORKEli Talmor, Francesca CornelliPrivate Equity ClubThe school's Private Equity Institute is the(private equity), Gerry Georgebiggest and most renowned in Europe(entrepreneurship)which creates visibility for the schooland allows for numerous networkingopportunities.Shari Loessberg (venture capital),MIT/Stanford Venture Lab. The MITThe school has a strong entrepreneurialNoubar Afeyan (VC and entrepre-Venture Capital & Private Equityculture and as a result 20 percent of theneurship), Andres Almazan (privateClub is famous for its conferencealumni are Presidents or CEO, the almuniequity)but also for its VC competitionbody has collectively started over 650that engages MBA students acrosscompanies.the US.Roy Smith (private equity), AswathStern Private Equity Club,The graduate finance association and theDamodaran (valuation), Ed AltmanEmerging Market Association,Stern Private Equity Club organises a num-(restructuring) Max Holmes andGraduate Finance Associationber of networking events to leverage theAllan BrownNew York edge and take advantage of therich private equity community of the NewYork area.Derrick Collins (venture capital)Private Equity andExtensive alumni resourcesEntrepreneurship at Kellogg. TheEntrepreneurs and Venture CapitalClub is more geared towards ent-preneurial support and incubation.Duncan Angwin, HumphreyOxford Private Equity Network,The Oxford Entrepreneurs network in theBattcock (director of Advent)Oxford Entrepreneurs (the largestUK and in Europe is first class. The Oxfordentrepreneurs network in the UK)and Cambridge Club in London createsnumerous high profile networking opportu-nities.H. Irving GrousbeckPrivate Equity and Buyouts Club,The school's network is particularly strong(entrepreneurship)MIT/Stanford Venture Labin the VC industry on the West Coast.Steven Kaplan, Ellen RudnickEntrepreneurship, Venture CapitalThe local clubs are active and create good& Private Equity student group,networking opportunities in the US. Thewhich spots innovation and VCnetwork of private equity professionalsopportunities.remains mostly mid-west based.Peter D. Linneman (real estate),The Wharton Private EquityVery active role of the Wharton PrivateStephen Sammut (internationalConference, along with the HBSEquity Alumni Network for dealsourcing,private equity), Raphael “Raffi”event, is the most respected onnetworking and recruiting.Amitthe East Coast, the WhartonEntrepreneurship Club and theWharton Private Equity Club con-tribute to make Wharton amongthe top in private equity.Michael BrandlPrivate equity groupThe Hicks, Muse, Tate and Furst center forPrivate Equity offers numerous networkingopportunities.Paul Bracken (private equity andThere is an annual conferenceThe network of Yale is vast in the areas ofM&A)organised by the Private Equitygovernment and law which has proven anClub of the School. The club alsoedge for some private equity managers.organises speaker series bringingBut the Yale Club in NY is also one of theback some particularly successulbest in private equity. There are numerousinvestors on campus. The student-private equity breakfasts and meetingsrun Sachem Ventures is also a keythat consitute networking opportunities.network and resume builder.