All About Equity Capital Markets: How You Get In, What You Do, and What You Do Next
Ok, no more questions about Equity Capital Markets: this one interview with a reader should answer everything on your mind.
We cover how you get in, what the recruiting process is like, what you actually do in capital markets, the culture, and the exit opportunities.
Equity Capital Markets is sometimes labeled Structuring & Origination, and can involve more than just IPOs – for example, underwriting equity derivatives, convertible debt, and hybrid instruments may all fall under the ECM label.
The department also hosts teams for private placements and syndication.
Capital Markets Recruiting
Q: Can you tell us how you got started in ECM?
A: I started as a generalist in the Analyst pool and was eventually placed into the Equity Capital Markets group.
Like any other placement process, the choice was made on the firm’s need and what experience I could bring to the table (ex: investment banking summer internship).
Q: Ok, so you didn’t recruit specifically for ECM – but I’m guessing you’ve interviewed lots of people looking to get in. What’s the recruiting and interviewing process like for ECM?
A: It’s not much different from normal investment banking interviews.
You’ll still get the typical questions on accounting and valuation, but you need to show more of an interest in the markets : how indices are performing, previous issues in a sector you’re interested in, and if you’re interviewing for a convertible debt position you should know how calls, puts, and equity derivatives are used and why they’re used.
They’ll also focus on why ECM vs. other groups – you want to say that you like the markets but you’re still more of a banker than a trader.
Covering derivatives, you’ll get a chance to close hedging trades, and work with traders to see if a convertible could be done in the current market climate. Equity originators typically interact with the sales force and are focused more on the story of the deal (ex: use of proceeds).
A Day in the Life
Q: So what do you actually do in Equity Capital Markets? What does an Analyst there have to do each day?
A: First, note that working in equity origination is different from covering convertible offerings. Both are under the ECM department; other groups include Syndication and Private Placements as mentioned earlier.
On the equity side, most of your work consists of updating market slides, creating case studies on recent equity offerings, working on internal memos, and drafting up selling points for equity issues that are about to launch.
The “grunt work” consists of looking up stock ownership and analyzing the buying and selling history of stocks.
The convertibles team is significantly more technical because you’re working with derivatives and you need to develop valuations of convertibles and produce derivative structures suitable for the client.
Just like other types of financial modeling, the math isn’t “hard” but it is a lot different from what you learn in any training program – so there’s a learning curve when you first start.
Q: Ok, so there’s a mix of both qualitative work and quantitative work in ECM, and that the quantitative work with convertibles is a lot different from other types of financial modeling. What’s a day in the life of an ECM Analyst like?
A: The day usually starts at 7:30 AM – usually Syndication is the first group in the office.
The convertible team shows up around 8:00, and the staffer shows up around 7:45 – 8:00.
The actual workplace for ECM is very similar to a trading floor – each computer had Bloomberg, FactSet, and Capital IQ, and the floor is noisy because senior bankers are on the phone with clients and analysts are responding to requests.
After I finish up reading up on the markets and recent news, my Associate stops by around 8 AM with the work that we need to do for the day.
Usually I’m asked to update slides with market data needed for pitches, create case studies on recent equity offerings, make ownership diagrams (show how the composition of institutional investors in stocks changed over time), and create new slides based on the senior banker’s ideas.
Around 9 AM, I get my assignments on the convertible side – updating market summaries, case studies, and convertible valuations for upcoming pitches. Most pitch books have a market review slide to keep the client updated on current deals.
The rest of the day is taken up by these tasks, along with requests we get throughout the day – unlike M&A or industry groups, you do more “take 30 minutes to respond to this request”-type work in ECM. This is the case because you typically cover more than one industry vertical.
I usually leave around 7:30 or 8:00 PM, so the average day is around 12 hours – less than what the average banker works.
The convertible team works somewhat closer to “banking hours” more often and sometimes left at midnight or later, because the work is more quantitative and requires more frequent updates.
Q: Wow, only 12 hours a day – are you sure that was investment banking?
You mentioned a few times that the work in convertibles is more quantitative – for those not familiar with it, can you describe what exactly you have to do?
A: As long as you’re advising clients on raising capital, it’s investment banking. The career path for more senior bankers starts off in coverage and moves to capital markets.
The main tasks for the convertibles team include valuing convertible bonds, creating convertible bond term sheets, and then creating payoff diagrams or schedules for investors. Here’s a representative sample of other products being pitched.
There are a couple of ways to value convertible bonds. A simple method involves looking at each component – the regular bond and the option feature. Inputs to the models include the volatility of the equity and the credit risk for the bond component. Another method is the binomial approach, examining the value of the bond if it were in debt form or equity form at various points.
The convertible bond term sheet simply states the key features of the bond – conversion scenarios, interest rates, maturity, anti-dilution provisions, covenants, and so on (sample term sheet).
The payoff diagram just shows the profit/loss to convertible bond investors at a range of share prices – it’s more complex for convertibles, but you can see a simple example for options right here.
Murders & Executions
Q: Ok, I know almost nothing about convertible bond math so let’s abruptly switch topics. You mentioned before that the equity side had a lot of qualitative work and that convertibles were more quantitative, but how much time do you spend on pitching vs. deal execution?
A: The breakout of my time is something like this:
- Pitching: 60%
- Processing Internal Memos: 10%
- Deal Execution: 30%
Keep in mind that it’s not uncommon to spend over 50% of your time pitching in investment banking, unless your group happens to be very busy with clients.
Q: Ok, so let’s say you’re working on an IPO. What type of work would you do and what would the industry coverage team do?
A: First, note that there are really 2 roles for banks in an IPO: book runner and co-manager.
Book runners do most of the work, get the majority of investors, and collect the largest fees, while the co-managers are proportionately less involved and get lower fees. At the book runner level, analysts will develop sales force memos that will highlight selling points and risks for the client’s security.
Most bulge bracket banks will only be involved with IPOs if they serve as book runners, while boutiques and middle market banks fulfill the co-manager role.
In terms of the IPO process itself, both ECM and Coverage are involved:
- IPO Valuation Model: The industry coverage team begins the model with capital markets’ assumptions about the appropriate discount and how much can be issued.
- Customer Due Diligence Calls: Mainly coverage.
- Sales Force Memo: ECM is responsible for this one – we have to analyze and understand the company, and then summarize the key points for the sales force so they can properly pitch it to investors.
- S-1: Initially the lawyers give us a template, then the industry group makes their additions, then ECM provides feedback, the lawyers weigh in, and this cycle repeats dozens of times until it’s done.
- Road Show: The coverage bankers are responsible for the road show, but every once in a while ECM gets to see a sales force presentation.
Culture & Lifestyle
Q: So what’s the culture of the ECM group like? I’m guessing there are fewer “Patrick Batemans” if most people leave the office by 7:30 or 8:00.
A: Yeah, that’s accurate. The equity, syndication, and private placements teams are very casual and relaxed – most people play sports, have interests outside work, and everyone is easy-going and approachable.
There is no real “face time” on the equity side – if you’re done at 7 PM, you can go home and no one complains about it.
The convertibles team is more like traditional banking, and staying late / getting saddled with face time is more common.
You’ll get asked to stay late and help with more random tasks and projects in convertibles vs. the equity side.
Q: What about the pay? How do base salaries and bonuses in ECM compare to other groups?
A: Base salaries are standard across all investment banking groups, at least at large banks – so they were identical to what you’d get as an Analyst anywhere else.
Bonuses are dependent on group performance as well as how well the analyst ranks, so it’s hard to generalize there.
Exit Opportunities
Q: So what types of exit opportunities do you have access to if you’ve worked in ECM?
A: You have 3 options:
- Move to a coverage group.
- Move to a hedge fund in an ECM / markets-related capacity.
- Move to an investor relations firm.
The skill set in ECM is more niche: the modeling and analysis is similar to what an analyst in a coverage team would do, but you look at the financial statements in different levels of depth. For example, the valuation of a convertible bond has little to do with the company’s “story.”
You do need to understand those concepts in ECM, but you don’t actually create the models yourself – so it’s more difficult to get into private equity or groups that require a lot of modeling. If you are placed in ECM, you should still review how trading comps are put together, how transaction comps are done, and learn how to walk through an operating model to see how each part fits together.
Q: That makes sense, but what about on the convertibles side? You said it was more technical – so do you have better exit opportunities there?
A: Theoretically, yes, you should have better exit opportunities and you should be able to go to hedge funds that do convertible bond investing.
It’s still difficult to move into PE or anything that requires coverage modeling because your skill set – though it’s more technical – is still different from what’s required in those fields.
Q: So what advice do you have for someone placed into ECM who wants to move elsewhere?
A: Many people sign up for ECM after they complete their investment banking years – it’s an easier schedule, though you can still be on call when the client has a question or request.
As an analyst, it’s very important to know how the valuations are done and how the client’s operating model works.
When preparing to transfer to another group, focus on what’s transferable (hint: making case studies, market slides, working on internal memos) and be sure to hone in on how the groups are similar rather than their differences.
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You mention how to talk about M&A transaction experince in the interview guide but how should I talk about Capital market transactions (that is all I did in my internship at a small bank), I didn’t do anything quantative either.
Talk about what you did there, your level of involvement in raising capital, presentations/models you’ve done
Is Rotschild easier to break in than GS or MS? Also will the exit opps in Rotschild be comparable to GS or MS exit opps?
It really depends on you and the interviewer. I can’t say. Exit opportunities – depends on what your role is and how you perform & interview
Hi,
In the article, it is suggested that converts might have better exit opportunities than vanilla ecm, with the interviewee going so far as to suggest convertible arb hedge funds.
Is there anyone here that can give us a full spectrum of exit opps? I am curious as this field seens really specialised and the exits do not seem as obvious as in M&A.
Can one get into something like corporate development after? (if I am not wrong, it was mentioned in this site that corp dev just cares about deals)
Thanks much
This field is more specialized and I think its harder to break into corp development after
In some banks, coverage is responsible for sales force memo and ECM gives feedback.
I have a BB ECM interview coming up (they specified ECM). I have BIWS but its said above that the modelling is different? Will I still be grilled on technicals (I study finance and have previous IB internships.)
I did a couple of equity/debt raising pitchbooks during my previous internship. How should I present them in the best light so I sound employable?
Do I need to know about derivatives and how to value them etc? I need to know how to value options, etc also? They haven’t said if Ill be on the convertibles team or the other ECM team (which is called?) so idk how technical the interviews will be.
Any other pointers for prep? I really want to get this internship! :)
Technical questions are similar, they may ask about something like an IPO valuation (use public comps but no DCF or precedent transactions). Equity/debt pitch books – explain the process, the steps needed to complete the financing and cite specifically what you know. Don’t need to know about derivatives or options valuation. Be able to talk about solid recent IPOs and stocks you would invest in.
Is there more info about ECM technical ques somewhere. I never knew public comps are used but no DCF or precedent transactions… :S
Pitchbooks – again is there anything that discusses this in detail?
Got it on the options etc and stocks. How do i ‘pitch’ the stock? Just say what price it was trading at and why i think its a good stock? Are there examples out there?
The article also mentions this:
how indices are performing, previous issues in a sector you’re interested in, and if you’re interviewing for a convertible debt position you should know how calls, puts, and equity derivatives are used and why they’re used.
Sector – can you pick anything like TMT etc?
Indices – which ones? How do I check?
Yes, pick any sector. Don’t worry about advanced math for convertibles, not going to come up in interviews. Indices – the main ones in your country, so in the US the S&P 500, DJIA, and NASDAQ… in Japan, the Nikkei, and so on.
Okay so I need to know whats happened to them like up/down and why? Over the past day, week or year?
Suppose you get a BB ECM internship. Is it possible to move over to a coverage group (for full-time) or the M&A group? Is it also possible to swap teams during the internship to get a flavour of the other divisions (I know one of my friends was in a converge group and had a week in ECM).
Yes it is, but you’ll have to network a lot! Do it sooner than later. Maybe? It depends on your bank and your group. If your group has a lot of work for you, it might not be possible but I doubt it.
Hi, I have an interview with a large boutique in their convertible securities group. What kind of general technical questions do you think they would ask me in the interview? I’m a little worried because I don’t have any prior experience/training in ECM. Any help would be greatly appreciated, thanks!
You might get questions like What is a CB, how do you price a CB. Readers may have some input too. Check out http://www.mergersandinquisitions.com/institutional-sales-convertible-bonds/
Hi,
What other exit ops exist? ECM is housed within I-banking and while I understand you do not run the model, you have alot of exposure to models as well as an deep understanding of the markets and what drives successful IPO’s, how companies in your sector trade, etc, is this fair? If you have a background in modeling (say former PE or HF experience) is it relatively common to get looks from investment firms?
Just looking for more clarity on the exit ops thing, worry ECM is unfairly stigmatized as it is considered ‘banking light’…any thoughts? It is a pretty high profile position within any reputable I-bank I would think?
Yes this is fair.
Yes. You might want to demonstrate your knowledge of the markets and experience of analyzing stocks if you want to work for investment firms, because you might not necessarily gain such knowledge in ECM
Yes ECM is a high profile position in banking, but you will have to spin your pitch a bit if you want to move from ECM to the buy-side because you don’t necessarily gain the modeling/market skills buy-side look for and the clients you deal with are corporates, not institutional investors. Its easier to move to the buy-side if your work is more related to the public markets i.e. Equity Research, S&T and allows you to deal with institutional investors
hi
i want to know that,how to enter in nse capital market as a employee. which course is for this field.
Any help would be greatly appreciated, thanks!
Not sure how NSE recruits but I’d try to visit NSE, give the office a call and network with people there to break in. Readers who have worked in India may give you better insights
Sorry I have a somewhat unrelated question, but which school would be a higher target for New York. Boston College, Villanova, or Notre Dame? Also could you rate them 123.
Maybe about the same? None of those is a true “target school.”
Notre Dame is definitely a target school. All the major banks recruited from GCM, IBD, and S&T there.
Hi,
This is not quite related to this topic, but I wasn’t sure where to ask this. I’m in the M&A team of a Big 4, and I recently worked on a Project Finance transaction. The topic interests me, could you cover some more information on the topic? Opportunities, and the future?
Many thanks,
Soni
Yes, Project Finance is on the list. We want to cover it soon.
Dear Brian,
I work at an mid-market investment bank in India in the ECM dept for around 2 and a half years as an Analyst. Sadly, I just found out about your site a few months back. Even sadder on M&I there is nothing except this article remotely referring to ECM. Making a resume with my profile is hell of a job but taking professional help for $400 for it in India is an impossible task too.
Warm Regards,
Nandan
Thank you for visiting our site. We have another article on equity syndicate which you may find useful http://www.mergersandinquisitions.com/equity-capital-markets-syndicate/
Thanks for that Nicole! But any tips on how with an vanilla ecm background like mine can make a favorable resume not only for MBA college but also to move elsewhere in IB or buy-side?
I understand your concern. Try to have a mix of “high-profile” or larger deals that catch recruiters’ attention and deals where you contributed something more substantial. Focus on modeling or valuation work if possible. Try to link anything qualitative to how it was used in the transaction. http://www.mergersandinquisitions.com/investment-banker-resume-template-buy-side-jobs/
Dear Brian,
I have an interview for an associate position in a ECM capacity, in a couple of days. I would like to know which topics I should focus on in the financial modeling courses.
Thanks.
Hi Kenneth, there are some ECM-related questions in the interview guide, such as the trade-offs between equity vs. debt and topics like that, so you may want to review those questions. We do not really cover ECM explicitly in the modeling courses because there is not much to many of the deal types (in an IPO or follow-on offering, the company issues new shares… Equity and Cash both increase to balance each other out).
Cool. I just had the interview earlier and one of the question posed was how can we calculate the total equity funding a company requires for an IPO. I couldn’t figure out a solution, ie the kind of financial model that we can use based on the models in BIWS (Basic and Advanced).
Help!