September 9, 2007Dealbook–THE NEW YORK TIMES

Consider the management consulting industry: It’s a dirty little secret, but most of the big-name private equity firms had been outsourcing some, if not much, of their due diligence on deals to firms like McKinsey & Company and the Boston Consulting Group. The consultants, in turn, built up their own groups to handle the enormous work flow. So, whoops, there go the consultants.

All those starry-eyed M.B.A.’s are in for a shock, too. For the last four years, M.B.A.’s have been clamoring for jobs in the private equity industry. About 11 percent of Harvard’s M.B.A. class of 2006 secured private equity positions, up from 7 percent in the class of 2004. And the number from the class of 2007 is even higher.

Many M.B.A.’s were former bankers who had taken jobs at private equity firms and hoped to return to the equity shops afterward. Now the door to private equity and banking — and don’t forget hedge funds — may be shut, too.

The Ranks of the Comfortable Are Still Thinning

By ANDREW ROSS SORKIN

BY now, all of Wall Street understands that the private-equity gravy train has jumped the tracks. But few seem to realize how ugly the pile-up could become.

With the buyout market in free fall, lots of attention has focused on a few obvious pressure points, like which investment banks will rack up big losses on the $330 billion in debt that they committed to pay for leveraged buyouts over the last year.

For the most part, though, Wall Street seems to be taking it all in stride. James Dimon, the chief executive of JPMorgan Chase, said last month that he was “comfortable.”

Comfortable? Let me offer a more dour view: wide swaths of Wall Street, and many of the industries that serve it, are in for some serious collateral damage. Not only has private equity been out of business for the last two months, but that activity is not likely to resume with any significance soon. And when it does, it will be at a fraction of its recent peak.

So what does that mean? For much of Wall Street, a severe case of withdrawal. Forget about cutting the size of bonuses: let’s start really thinking about the possibility of slashing jobs.

Virtually every major investment bank in recent years had staffed up its “financial sponsors group” — which serves private equity firms — and many now have dozens, if not hundreds, of people devoted to the effort of calling on Henry Kravis every day.

Here’s the thing: Mr. Kravis won’t have much business going on, so the bankers won’t, either. Even if you redeployed a large number of them to other activities, many jobs would have to go.

Further down the line, the private equity firms themselves may begin to cut personnel, or at least stop hiring. That goes against the grain for most private equity firms, because their limited partners have pressured them to have increasingly larger staffs, not smaller ones.

Why is that? Well, it is hard to justify how the 2 percent management fee from a $20 billion fund — that’s $400 million for those of you doing the math — is going to be divided among only 50 people. (Yes, if it was evenly distributed, that would be $8 million a person, which doesn’t even include possible performance fees.) If private equity firms stop hiring, the ecosystem of irrational compensation packages across Wall Street will also change.

In recent years, private equity helped artificially inflate the market by hiring talent at astronomical prices, pushing up pay scales at banks, law firms and hedge funds — anywhere that private equity tried to take talent from. Then there are the support systems, which may also be taken apart.

Consider the management consulting industry: It’s a dirty little secret, but most of the big-name private equity firms had been outsourcing some, if not much, of their due diligence on deals to firms like McKinsey & Company and the Boston Consulting Group. The consultants, in turn, built up their own groups to handle the enormous work flow.

(In case you’re wondering why private equity doesn’t do all of its own spadework, here’s another secret: It’s cheaper than hiring talent and — get this — some of the cost of outside consultants can be charged back to the investors as a deal expense.)

So, whoops, there go the consultants.

All those starry-eyed M.B.A.’s are in for a shock, too. For the last four years, M.B.A.’s have been clamoring for jobs in the private equity industry. About 11 percent of Harvard’s M.B.A. class of 2006 secured private equity positions, up from 7 percent in the class of 2004. And the number from the class of 2007 is even higher.

That alone should probably have been a sign of a market top. In any case, the party’s over, and it’s not clear where all these M.B.A.’s will go.

Many M.B.A.’s were former bankers who had taken jobs at private equity firms and hoped to return to the equity shops afterward. Now the door to private equity and banking — and don’t forget hedge funds — may be shut, too.

THE collateral damage may keep mounting.

Consider the ultimate bellwether: a little company called SeamlessWeb. As an online food-ordering service used by the major banking houses and law firms, SeamlessWeb does a brisk business with young analysts who get stuck late at the office. Without all those buyout deals requiring all-nighters, SeamlessWeb’s messengers may not be as busy, either.

So what’s the upside?

The analysts who still have jobs may finally get a good night’s sleep.

DealBook also has a newsletter and a Web site, nytimes.com/dealbook, that is updated continually when markets are open.

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Yikes, what class participation is really like at HBS.  Is it just me, or is there something scary about this, like the meter is running ALL the time, so you gotta wag your tail, and look engaged regardless of how well prof or peers are doing? Transparency or Mind Control???

Class Participation–HARBUS ARTICLE

Are You Doing it Right? [ well, frankly, I never worried about that til I read this semi -ridiculous article. ]

By Jayne Chng (NH), Associate Editor

Issue date: 9/4/07 Section: FeaturesPage 1 of 1

Over one hundred RC folks crowded into the Aldrich classroom last Wednesday afternoon to attend the WSA RC Class Participation Seminar hosted by Professor Frances Frei. Billed as a WSA event, the crowd was understandably predominantly of the fairer sex although there were a few courageous male souls who braved our stares and snuck in quietly.

Disarmingly frank and immensely patient throughout the hour long question and answer session, Professor Frei described the actual process in which professors record and grade comments in great comforting detail, while debunking several RC myths on class participation with much wit and humor. We heard much again about the large face charts in our professors’ offices, the phenomenal abilities of our professors to re-enact the entire discussion within the classroom in the comfort of their private offices, the extensive use of spreadsheets et al to track our participation rate, all tools to ensure each and every one of our comments receives due credit. What is less well-known however, is the revelation that class participation is much more than just the comments you make in class; disruptions like walking into class late, or disruptions while a section mate is speaking all count toward negative class participation. Perhaps the best advice of the entire session was given right at the beginning of the session, when Professor Frei stressed the importance of having a well-rested mind, which in her opinion, was more important than all the extensive case preparation you could do. ?

For those who missed the session
here is a much abridged summary of the top tips for class participation – good luck!

1. Get enough sleep as you need to be fully alert to participate in the discussion

2. Never spend more than two hours preparing each case since the marginal value is not worth the effort

3. Start and end your case preparation with a review of the high- level concepts, and do not get lost in the numbers

4. Consider cold calls as gifts for class participation

5. Always make an attempt to answer the cold call/ question, even if you do not have the full answer; never pass on a cold call.

6. Raise your hand higher and be visible! Your professor cannot call on you if he does not see you

7. Look interested and engaged in the discussion, even when you are not speaking

8. Do not be afraid of giving a wrong answer. You will still get credit for good class participation if your answer helped move the class learning along

9. Comments from the experts on their area of expertise do not always receive additional credit; if you do share your experience, be sure to link the point to the case at hand.

10. And finally, a good comment is….one which pushes the discussion along and is getting picked up by others in the section as a starting point for their comments.

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I guess my point is that I agree with you but I’m surprised that you’ve limited that to HBS. I’m pretty sure all the schools are the same in this respect, ——————————————————————————————————–

At HBS goal statement is almost never a plus, and rarely a dealbreaker, you just need to cruise thru it, sorta like taking chair lift to the real run, you need to do it, and dont fall off or fall and break your leg.  At schools like W, goals is a whole Kabuki theatre production w. many REQUIRED and FORMULAIC parts, and a big part of key essay one, and often stated as THE SCREW UP IN FEEDBACK. So goals at W. is CRUCIAL and you need some convincing jive and roadmap –and if that dont pass the pinch test, you get screwed, esp.  if you are in a congested cohort, e.g. IT, banking, MC etc.

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One thing that annoyed me was the fact that adcom and the alums kept saying how you should have a clear vision when you apply. And on the other hand, they all graduated and did something totally different. They want you to know what you want to do but keep an open mind.

How? If goals are muddled, or if they do not require an MBA, or if they sound phony and unsupported. But there is another killer castle on the other side of the chess board, if goals do not indicate enuf CHANGE fr. what you are doing, that could sound like you are not opening yourself up to TRANSFORMING experience enuf, so if you plan to stay in same industry, make goals bold, e.g. lead a company into new area of that industry. 

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Same event, w. one very important point about goals!!!!

Hi Sandy,
 
Just thought will briefly share my experience at HBS last Thursday. The event was pretty cool. The classroom was packed with around 80-90 prospective applicants. Few of them looked clueless but on the whole the quality of attendees was good . . . .
Following the hour and a half of case discussion, the adcom showed a video on case method teaching and then invited 5 alums for a Q&A session. Nothing enlightening other than usual “HBS is the best” stuff. One thing that annoyed me was the fact that adcom and the alums kept saying how you should have a clear vision when you apply. And on the other hand, they all graduated and did something totally different. They want you to know what you want to do but keep an open mind.
 

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Lively account of HBS dog and pony show, this one at The Mother Church.

Anyone who was there and can add a Dee Dee fashion note, please do write in!!!!

It’s after Labor Day and we want to see the fall line-up.

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HBS Admissions Event – September 6, 2007

- Location: Aldrich Hall, 7:00 pm – 9:00 pm, rooms 107 – 109

- registration starts 30 minutes earlier, adcom have lists of names to check off when you register so they will have a record of your attendance

- ~180 prospective applicants divided into 3 groups; 1 group for each classroom, 3 classrooms in total

- 3 case method classes going on simultaneously

(7:00 pm – 8:00 pm)

- Very articulate and friendly adcom staff (HBS alum) introduced Prof. Nabil El-Hage

- no small talk, quickly launched into case method analyzing whether 4 candidates in the case should apply for HBS

- cold calls, be prepared to answer whether each applicant should or should not apply, and why

- a pros and cons list for each applicant is best way to prepare for this case study

- lots of eager beavers in the crowd, if you want to talk, be prepared to shoot up your hand and be aggressive

- scope of discussion was wide ranging and includes: past records of success, married couples, financial means, academic records, international backgrounds etc.

- Prof likes to link conclusions to exhibits at the back of the case study, i.e. a lot of “what does the statistics tell us?”

- lots of buzz words thrown around, i.e. “leadership”, “ambition”, “service”, “out-of-box”, “social value”, “global”, “initiative” etc.

- at the end, Prof likes to put things in a positive light, i.e. “HBS is for everyone who has shown leadership in their own way” or ”all four candidates will do well in HBS”

- basically, case study is a HBS sales pitch

- doubtful that adcom staff would remember who spoke during the case method – no name tags, don’t see them taking any notes

(8:00 pm – 8:15 pm)

- after case method, adcom showed a propaganda video of HBS students engaging in group study and classes

- entire video was very polished and professionally done. good music, good light, good angles

- very dramatic script; energetic and uplifting mood

- was a more effective sales pitch than the case study, crowd was pumped up after video clip

(8:15 pm – 8:50 pm)

- the final session was a Q&A session with 3 HBS alumni and 2 current HBS students

- pretty varied backgrounds before HBS: 1 P&G sales, 2 goldman, 2 entrepreneurs

- none of the 3 HBS alumni are working for blue chips now: 1 has a business, 1 in sales, I forgot about the last one

- all were very articulate, though 2 alumni seemed a little nonchalant.

- talked about their post-HBS experiences which weren’t as uplifting as the previous two segments, i.e., ex-goldman alumni was talking about her husband moving to pittsburg and she needed to find a job there but failed (probably no 6 figure jobs for her there); one alum was talking about how he had to do sales b/c his company is too small etc.

- crowd’s mood deflated a little with a dose of reality (not everyone is a CEO?!)

- questions were mostly about their experiences before, during and after HBS, nothing extremely useful there

- last question was about applications to HBS, everyone regurgitated the standard HBS line: “know yourself”, “there is no such thing as a typical student”, “it is foolish to write what you think HBS wants” etc. nothing surprising there.

(8:50 pm – 9:00 pm)

- final 5-10 minutes consisted of applicants rushing down to alumni and adcom staff to make an impression with congratulations, thanks and small-talk. go fast if you want to chat, or be prepared to wait.

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