2016 Year in Review and Reader Q&A: The Worst of Times?
And… here we are again: The end of the year.
Overall, it was a bad year for me.
I started off strong in the first half but got bogged down in work problems and social stagnation in the second half.
But it wasn’t just me.
Globally, the first half of the year went decently, while the second half (roughly) brought us Trump, Brexit, even more terrorist attacks, the looming disintegration of the EU, the iPhone 7, the Galaxy Note 7, and, worst of all, Pokémon Go.
Oh, and I think something also happened with the Kardashians.
But let’s start with the positives by arguing about the most prestigious bank and explaining why you probably won’t get into private equity:
Rank the Banks… Again, Please
I’m always amazed at how personally people take comments on specific firms.
So, let’s do the logical thing and dive right back into the abyss!
Q: I disagree with your assessment of middle-market banks and how you said it’s difficult to get into private equity from them.
Analysts at firms like Harris Williams almost always place well into PE, with 85%+ winning offers.
A: I can believe that the PE placement rate at some specific firms within the category is higher.
Is it 85%? I’m not sure, and I’ve never seen data to that level of detail.
However, even if Analysts at one middle-market firm have a better shot at PE, it is still much easier to get in coming from an EB, BB, or even an IBAB.
But I’m happy to be proven wrong if you can show me the data.
Q: Why are you so certain that it’s difficult to get into PE from non-EB and BB banks?
A: Think about the numbers for a second:
- Bulge-Bracket Banks: Each one hires over 100 new Analysts per year in the U.S. alone.
- Private Equity Firms: The few biggest ones might hire only a dozen or so new Associates in the U.S. each year.
Worldwide, there might be a few thousand new IB Analysts each year.
But there are not thousands of new PE Associate roles each year: Firms are smaller, turnover is lower, and they don’t need as many people.
Also, every interview I’ve ever done with a reader who recruited for PE roles ended with the person saying, “It’s tough unless you’re at a top bank.”
Q: What about more SPECIFIC rankings? How do Cowen, Stifel, and Leerink compare for healthcare? Didn’t one group just fall apart…
A: I don’t like to make rankings too specific because they quickly go out of date.
Your best bet is to look at recent transactions on the firm’s website rather than reading speculation from anonymous 18-year-old commenters.
Also, ask how long each banker has been at the bank when you interview there: If there are many new senior bankers (<1 year at the firm), something’s probably wrong unless the group itself is brand-new.
Q: I attend a top-ranked university in the U.K. and have a 1:1, but I’ve done only one IB internship, and it was at a regional bank in Southeast Asia.
Which banks should I target?
A: You could probably win a BB or EB internship already, but to be safe, you could also target some IBABs.
If you can get another internship at a better-known bank, you can focus exclusively on the first two categories.
Q: When is it worth it to lateral from a MM or IBAB to an EB or BB?
A: When you’re 100% set on doing PE at a mega-fund.
If you want to work in corporate development, corporate finance, or even at a hedge fund, I’m not sure it’s worth the time and effort.
Most HF recruiting happens off-cycle, so you benefit a bit less from being at a top bank (though the biggest funds do use on-cycle recruiting).
Crazy Private Equity Recruiting
Nothing inspires fear like realizing you are just a cog in the wheel, and that the wheel – private equity recruiting – wants to murder you.
Would you want to be in that wheel at all? Yes, apparently:
Q: Help! My group has terrible deal flow, and I haven’t done any substantial work since I started.
Should I postpone PE recruiting and do it as a 2nd Year Analyst next year instead?
A: This is not a great idea. First off, if you do this, you’ll have to hope that you get a 3rd Year Analyst offer so you can stick around in IB for three years.
Second, no one has done “substantial work” by the time PE recruiting rolls around; everyone fakes it by pretending pitches are real deals.
Finally, your chances depend more on your bank, group, and university than anything you’ve done on the job.
Q: Is it worth it to do a “practice run” at PE recruiting and try again next year if I don’t win offers?
A: This is also a bad idea. See above.
Go through it for real, so you don’t have to rely on a 3rd Year offer.
If you don’t get an offer, think about smaller funds that use off-cycle recruiting, or consider alternatives such as corporate development.
And if you really think your bank’s reputation wasn’t good enough, make a lateral move to a bigger one.
Q: The PE recruiting process you’ve described sounds crazy.
Is it also like that in London and other financial centers?
A: No. It’s less structured in London, and it tends to start a bit later (January – March rather than October).
Also, there are more “start the job right after you win an offer” roles; this concept of interviewing for a job 1.5 years in advance is both silly and more specific to the U.S.
Q: I’m at a middle-market firm, but my group has strong deal flow and sometimes works on >$1 billion transactions.
Can I get into mega-funds?
A: I’m sure there are some exceptions, but I’ve seen very few, if any, Analysts who started at MM banks and then got into mega-funds.
If they did, they most likely went to larger banks first.
Q: Wait, but what if I’m in a unique group, such as Restructuring at HLHZ?
A: That might be one exception, but I’m not so sure; I just looked at a few distressed teams at large PE firms and saw mostly bulge-bracket bankers.
You have a higher chance if you’re in a specialized group, but your chances are still lower than they would be at a large bank.
Q: Why is there so much of an obsession with the mega-funds?
A: I don’t know. You tell me?
To me, it makes little sense because you don’t get paid that much more in today’s environment, you work longer hours, and, unlike banks such as Goldman Sachs and Morgan Stanley, the names are not known outside of finance.
I think people are obsessed because they assume that life is like a giant MMORPG where the main goal is to beat the most difficult dungeon and advance to Level 99 (or Level 130 in the expansion pack).
The Year in Review, Upcoming Interviews, and More
It was the best of times; it was the worst of times.
But mostly the worst of times:
Q: Quick summary of the year?
A: Geographically, I spent most of the year in Latin America.
It was a good change of pace, but I didn’t fit into the culture that well.
I’ve also increasingly lost touch with university friends and acquaintances. The events of this year revealed that most of them are in the “Intellectual Yet Idiot” category, and I got tired of seeing constant Facebook posts proclaiming the end of the world.
I finished a huge chunk of the new Bank Modeling course in the first few months of 2016 and then completed the Netflix case study on ECM/DCM/Leveraged Finance through July.
But then I got bogged down in creating version 4.0 of the IB Interview Guide, with technical sections that are over 578 pages long (no, really, I counted).
I should have finished it in 3-4 months, but I’ll likely need 6-7 months at this stage.
My progress also slowed down because I interviewed dozens of readers and wrote and queued up 50+ new articles in the last two months of the year.
We received some great interviews, but I should have spaced them out over several months instead.
Q: What are your plans for next year?
A: My biggest takeaway from this year is that I need to hire a COO or “#2.” It’s too stressful to respond to emergencies, personally, 24/7.
Also, I spent too much time on tasks of questionable value this year (e.g., responding to angry non-customers). I have to drop some tasks and re-focus on revenue-generating activities.
We’ll probably release a private equity interview guide and a Restructuring course, though the Restructuring course won’t be done by the end of next year (still too many other pending courses and additions).
Q: What are the most surprising points from these reader interviews so far?
A: My list would be:
- Both current bankers and private equity professionals at smaller funds are obsessed with getting into mega-funds. I don’t get it. MMORPG syndrome?
- It’s somewhere between “tough” and “impossible” to get into private equity anywhere if your background isn’t exactly right. If that’s you, corporate development is the best alternative (lower pay but better hours and nicer work environment).
- If you don’t have the right pedigree to get into IB right out of undergrad, real estate and credit-related roles are often the best “side doors” into the industry.
- I got a lot of questions about whether or not an MBA is worth it. Hint: No, unless you’re making a big career change.
Q: Favorite upcoming interviews?
A: I hesitate to pick favorites because there are dozens of good ones. Next year might be “The Year of the Interview.”
But the top 3 where I learned the most, so far, are:
- Private equity in Portugal.
- Turnaround/restructuring consulting.
- Canadian pension funds.
And yes: At long last, we’ll cover IB and PE in Brazil, after missing the country for years (first article on IB in Brazil is here).
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