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Thursday, July 19, 2018

Today, the Weekend Reader brings you Young Money: Inside the Hidden World of Wall Street’s Post-Crash Recruits by New York magazine and business and technology writer Kevin Roose. Roose immersed himself in the Wall Street recruitment process of young college graduates, which has found itself in its own predicament following the 2008 financial crisis. Since then, recruitment rates have fallen–becoming a Wall Street banker is no longer as glamorous as once perceived.

The excerpt below details just one of the eight relationships Roose cultivated during his three-plus years shadowing entry-level employees at several investment firms including Goldman Sachs and Bank of America Merrill Lynch.

You can purchase the book here.

One night, over dinner, I asked Derrick if he felt ethical about working in private equity—an industry that had been attacked as a form of “vulture capitalism” during Mitt Romney’s 2008 presidential run (and that would soon taint his 2012 run). He thought for a minute, took a sip of his beer, set it back down.

“Being ethical is kind of on a spectrum, right?” he said. “Like, I really like my firm, I really like the people I work with, and I think that within private equity, we do a good job of actually improving businesses rather than just going for quick money. But what conflicts me is that we don’t play by the same set of rules as everyone else. It’s a completely rigged system.”

I asked him what he meant.

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“Well,” he said, “we buy these little companies, we put the best lawyers and consultants in the world on it, and if it goes bankrupt, we never lose. We put in stipulations that don’t leave us liable, there are seventeen blocker corporations between us and the company.” He paused, then chuckled. “How are you going to out-money private equity? Good luck.”

But surely, I said, it wasn’t easy to identify the right investments, find the right ways to engineer a portfolio company’s finances, and time an acquisition with trends in the market. Wasn’t there also some skill involved?

“Well, look at it this way,” Derrick replied. “My dad’s up there, intelligence-wise, with anyone I work with, but the money doesn’t flow to him like it does to the guys I work with. It’s the system. People in private equity are smarter than your average person, but they’re not that much smarter. And as long as the system is structured like this—where, two years after the world’s worst financial crisis, you can get four-times-debt on a bankrupt business—it’s not going to change.”

Derrick let that hang in the air for a moment, then added with a wry chuckle: “Of course, I say all this knowing that the fucked-up system is how I have an apartment that I don’t worry about the rent for, how I take cabs everywhere and go out for nice meals and wear clothes that I don’t care how much they cost.”