Investment Banking Exit Opportunities: The Myth Of The Buyside Job
“Before I became so fervent about Private Equity, I thoroughly considered all my other career options: hedge funds and VC.”
-Hicks Musings, The Leveraged Sellout
One common question I’ve been getting lately goes something like this:
“I just started as a freshman at Harvard. I am majoring in economics and finance and I’m in the stock market club, the investment banking club, and I even borrowed $500,000 of my Dad’s money to invest in my personal accounts. So far I’ve earned a 50% return in 6 months.
How can I make sure that I work at Blackstone by the time I’m 25?“
Another variant of this same question:
“I am only doing investment banking so that I can pay off all my student loans in 2 years, but I have no interest in ever doing it again. What are the exit opportunities like for Associates at boutique banks who want to get into hedge funds?”
For those breaking into investment banking, the exit opportunities are always a big motivation.
It makes sense on paper: you go from working 90-100 hours a week and doing mindless work to working 60 hours a week and doing meaningful work 100% of the time, right? Right?
The Hours
Lifestyle is a common reason for switching from investment banking into private equity or hedge funds. Specifically, people assume that they will actually be able to have lives for once rather than sitting in front of a computer for 18 hours a day.
Private Equity Hours
If you go to a large private equity firm, like Blackstone, KKR, TPG or Bain, this assumption is false. You will be working banking hours for another 2-3 years – bet you can’t wait for that.
I’m amazed at how many people don’t realize this until they get to interviews with these places or until (gasp) they actually start working there.
If you go to a smaller PE or growth equity firm like Summit Partners or TA Associates, then you won’t be working 100 hours a week. But you will still be doing 60-70 – significantly more than a normal job – and on top of that you will have to travel quite a bit, so forget about a consistent schedule.
And when a deal heats up and you’re close to acquiring a company, your hours may remind you of what it was like to be an investment banking analyst: weekend work and sleeping under your desk for a few nights each week.
Hedge Fund Hours
Hedge funds tend to be better than private equity in terms of consistent schedules. You work market hours, and weekend work is not required unless you work at a PE-like fund that acquires companies.
However, some travel can still be required for doing “channel checks” (e.g., checking to make sure that the toy retailer you’re acquiring still has Wii stockpiles even in its Minnesota office).
And if you’re at a West Coast hedge fund, you now get to wake up at 5 AM every day so that you’re at work before the market opens on the East Coast.
Bottom Line
Some exit opportunities can indeed offer a better lifestyle, but you’ll never be working 40 hours a week in any of these industries. And you’ll almost always have a difficult time getting a consistent lifestyle with anything in finance.
Before diving into your next job, figure out what the lifestyle is really like so that you aren’t surprised by the mandatory weekly visits to the Yukon Territory in the middle of winter while doing diligence on an oil company.
The Pay
Yes, private equity and hedge fund pay tends to be higher than those investment banking salaries you always hear about… but that’s not the whole story.
Private Equity Pay
At private equity firms, you will make about as much per year as post-MBA Associates at banks make (e.g. significantly more than you made as an Analyst). At smaller places and growth equity firms, the difference in pay is not as huge, but it does tend to be higher than banking at the equivalent levels. At bigger places, it can be much higher than entry-level banking Associates; some even guarantee $500,000 or so per year.
However, the pay difference is much greater at the Managing Director/Partner level than it is at the more junior levels of private equity and investment banks.
So it would not be rational to want to switch into private equity solely because of higher pay, unless you are a very senior hire.
Hedge Fund Pay
Hedge fund pay can vary wildly between different funds. The standard seems to be a base salary of $100,000 for those coming in directly from banking, plus a bonus that will take you to the $200,000 – $300,000 total compensation level (very similar to private equity Associates).
This is much higher than what you could get as a 3rd year investment banking analyst, and is about on par with what post-MBA Associates at investment banks make.
Depending on the fund, their performance, and your performance, the bonus could be significantly more or less than this; if you have really bad luck, you might just get nothing as the fund collapses before your eyes! (ok, this is unlikely) And if you do really well, you might make closer to $500,000 total. That scenario is unlikely except for the largest funds.
However, as with private equity pay, there is a significantly greater difference at the Partner level, where top hedge fund managers can pull in over $1 billion in cash per year. That is more than private equity Partners make and far, far more than even the CEO of Goldman Sachs made last year.
It should also be noted that hedge fund managers making $1 billion are exceptions rather than the norm and most managers don’t make anything close to that, though in general they still make more than investment banking Managing Directors.
Exceptions Apply
One exception to all these salary figures is prop trading and certain small hedge funds / prop trading firms that could potentially pay you an unlimited bonus. I know of at least one place that actually pays you 50% of what you earn from trading, and there are several recent college graduates earning millions of dollars per year there.
But most people going into buyside jobs are not going to suddenly be earning millions of dollars at age 24. Your salary will almost certainly increase, but the really substantial increases over investment banking salaries come at the more senior levels.
The Work Itself
This is where people have some of the most incorrect ideas about private equity and hedge fund jobs.
Yes, there is a lot of stupid grunt work in investment banking that everyone hates doing… changing periods and commas in presentations, editing text in documents 500 times… formatting PowerPoint graphs.
The amount of stupid work you do certainly decreases when you move onto private equity or hedge fund jobs.
But guess what?
If you don’t like Excel or you think analyzing companies, doing valuations, or modeling are boring, you’re not going to like the buyside very much.
The work is just not that different.
You still do financial modeling… you still do diligence, and you still have to do some annoying grunt work. When private equity firms acquire companies and work with banks, for example, the Associate will be tasked with writing “bid letters” and working with banks on financing, which can often require a lot of number scrubbing and attention to detail.
Sourcing
Not only is the work fairly similar to what you do in investment banking, there is also a new type of work that most people despise: sourcing.
“Sourcing” is a euphemism for cold-calling. This is more prevalent at growth equity places (Summit is notorious for making its Associates cold-call companies all day) than at large private equity firms.
It may sound impressive at first to say that you’re in charge of bringing in deals. You may even think to make it part of your private equity resume.
But actually, you’re just in charge of cold-calling; the Partner still owns the deal, even if you “sourced it.” Some private equity firms do pay their Associates a bonus for closing deals they generated, but it’s paltry compared to what the Partners will make off it.
Managing Directors in finance source deals via their long-standing relationships and through regular communication with prospects. They don’t cold-call every company on the Inc. 5000 list until someone says, “yes.”
You, by contrast, will be doing this, or at least some form of it. And it’s one of the most common reasons why people don’t go into private equity or at least avoid the firms with a “sourcing model.”
The Social Aspect
This is one of the most overlooked aspects of investment banking vs. buyside jobs. With banking, you have a group of other Analysts working alongside you and you chat with them in your downtime, go to Starbucks together and enjoy models and bottles with them outside work. It’s almost like living in a dorm in college all over again.
With buyside jobs, this disappears.
You might be the only Associate; you might even be the only person under 30 in your office, depending on the firm.
Private equity firms and hedge funds tend to be much smaller than banks and don’t have as much of a need for an army of Analysts and Associates to do work… there simply isn’t as much work to be done.
This may sound less significant than the other factors I list above, but don’t underestimate it.
I actually know of some 2nd and 3rd year Analysts who were reluctant to leave for this very reason – yes, the pay and upside might be better, but not having any close friends in the workplace can make for a bad experience.
The Bottom Line
I don’t agree with those who think investment banking is only a stepping stone to working in private equity or at a hedge fund.
Doing the job only because you think those options are going to be completely different experiences is a bit absurd. They’ll be better in some ways, but they can also be worse in some respects as well. No one in banking ever yelled at you for not cold-calling enough companies.
If you want to work in private equity or at a hedge fund, it’s better to go there directly; if that is not possible, just do banking for a year and switch over (harder to do now with the market downturn).
But What About Venture Capital And Other Jobs?
I know someone is going to bring this up unless I discuss it here.
Venture capital and corporate development jobs can indeed offer a significantly better lifestyle than either private equity or hedge funds.
However, you will likely take a pay cut compared to what you were making as an investment banking analyst. You could actually be as senior as a VP in banking and make less than a 3rd year Analyst!
Plus, you still have the issue of the work not being that much different and the social aspects referenced above.
Don’t get me wrong: if you want to still have a good salary and a much better lifestyle, venture capital or corporate development could be right for you.
But recognize that, as with any other choice you make, there are tradeoffs between all these options and nothing is “the best.”
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Hi,
I have 4 years of experience between financial advisory from the big four and then equity research at a local bank. I have the option of choosing between several offers. 1. Local Private Equity Firm 2. Buldge bracket American bank as an equity research analyst 3. Investment banking at a french bank. I really think the private equity role is interesting, however, the american bank also looks very appealing, especially on a resume. I am also a CFA level 3 candidate. Can you please throw some light on these different paths.
Regards,
What do you want to do in the future?
If you want to stay in ER, go to a hedge fund, or do asset management, then pick offer #2. If you want to do PE, pick offer #1. If you want to do IB long-term, pick #3.
Well I do not want to stick to equity research for a long that’s for sure and I would think the private equity role is more interesting. Buy giving the early stage of my career is it more important to have a solid base received from the American firm, or I should take a risk and jump in the start up local PE firm. Please note that the offers are all in an emerging market.
It sort of depends on the market… in China for example local firms dominate all the deals and have been pushing out international firms. So there local is better. But in other countries it varies so it’s hard to say without knowing where it is and where you want to work long-term.
Hi,
I was wondering why you would say it’s better to work at a hedge fund directly. I’ve read your other articles where you say it’s better to start in a larger organization when starting your career.
Thanks!
If you are 100% set on hedge funds and can get into one right out of undergrad that is easier than going to a large bank first. The advantage of a large bank is that you get more options afterward due to the name and nature of the work
Hi,
I am wondering if you could discuss private equities in the real estate space. What are the exit options for someone working in BB real estate groups. Thanks.
JC
Something on real estate is coming up soon, I don’t know the specifics but a guest author will be writing it.
Hi Brian,
I have a bit of a dilemma. How common is it to move from Private Equity to investment banking? Is it heard of? I am planning to apply for my masters. I am confused as to whether to apply for an Msc in finance or an Msc in PE. Upside of msc fin is that it offers an overall view. Msc in PE is easier to get into. In terms of a career, I want to do both at some stage. Please help.
It is difficult because you almost always do the opposite. The Finance degree is probably a better bet since it is broader.
Is it a good choice to do agency trading at a BB before breaking into hedge funds, or is the most common route an analyst program in IB? Thanks!
Both are common really depends on the fund’s strategy; trading better for more trading-oriented funds while IB is better for sthg like merger arbitrage or events
Hi, this is a great site, very informative, Im very pleased you set it up to inform people about the finance world and how to get into it. I wanted to ask there seems to be a lot of talk about “buy side” investment banking roles on this site (it’s not a bad thing, just an observation), are there any articles focusing on sell side roles? Are examples of sell side roles research analysts and equity analysts? What other “sell side” roles are there?
What do equity analysts do?
Was Bud Fox in Wall Street on the “sell side” since he seemed to be making a lot of calls at the beginning of the movie to people trying to sell them investments, what do you think his job title was, since the film just seems to call him a “stockbroker” or would his actual job title have been “stockbroker”?
Thanks in advance.
Everything labeled “investment banking” is sell side. Please do a search for “broker” or “trader” for those (ref. to Bud Fox), also sell-side roles. And search for “equity research analyst” for recent coverage of that.
So true, when you are not working at a BB, your friends are 0. I work at the boutique level and everyone here is partner level so I ‘can’t kick it’ with people my age.. Oh well, you learn to deal with older people I guesss.
Hi, I was wondering if you could provide the name of the prop trading firm that you mentioned in the article.
http://www.jumptrading.com/ (Unconfirmed, this is just what they told me years ago)
Can you try getting an interview from a hedge fund guy? I’ve always wanted to know more about their work, pay, hours, lifestyle.
Do a search… http://www.mergersandinquisitions.com/hedge-funds-institutional-asset-management/
Hi Brian,
Reading the Nand’s post I found my self in a similar dilemma so i was wondering if you can help me about that.I’m 26 italian guy,i’ve been working as trader in sport exchange market for 4 years but my real dream is working in Finance(with a preference for Hedge Funds)cause I love this field.
I’m applying to some business schools (Columbia,ESADE in Barcelona,and IMD in Switzerland)to do an MBA but seeking out informations about these courses I realized that the preparation is broad and not focused on Finance as the various Masters,I know it’s quite obvious but my concerns now are:
Which one is the best path to get in more likely in the Finance world?Is the MBA a better business card and is it true that it allows you to get in soon and in a “more confortable”position ?
Thanks,
Marco
If you want to do trading or hedge funds, an MBA is somewhat useless – better to go for a Master’s in Finance at a top school to rebrand yourself and save some time/money. Also have a good personal portfolio and lots of investment ideas to show them.
But is it as “easy” as it is with an MBA to find a job or is it possible that after the Master you’ve still a lot to do to make yourself a good candidate for them?I mean,generally even before you finish the MBA you are contacted by the banks or the companies,I guess the Career service here plays an important role,so is it the same with the Master?Would you consider european schools valuable for finance(ESADE and IMD)?
thank you for the answer and really thank you for the site,it’s of great worth.
I think an MBA at a top tier school might be more valuable to interviewers vs Masters but again it depends on the situation, the school & the individual. Sure European schools are valuable for finance too as long as they are targets
Hi I’ve been following the website for a long time and get email tips very often that I am really appreciated! It’s a good web and very helpful!
One question, I had been doing investment banking in Asia for 4.5yrs before I came to b-school (top tier) in the states, and I am more location wise, that says, I want to work in NYC after b-school and switch to IM or equity research, but given the current market, should I apply IBD in NY as plan b? but it’s very time consuming as you need to spend time on networking, appreciated your view on this!
Yes as an intl student, it is harder to work in IM/ER given visa issues and easier to get in IBD in my experience
Why don’t the ex investment banking analysts consider moving into research firms or companies like BlackRock if they just want to normalise their working hours? Ok, it would still be more than 40 hours, but 60 hours per week should be very maximum. (I’m naive enough to believe the example time schedules e.g. here: http://www2.blackrock.com/global/home/Careers/WorkplaceandCulture/ADayintheLife02/index.htm#null)
Some do. But most want to move into PE given the payout & prestige. Skills are similar too. Just a “well-treaded” path
Hello,
Great article. I am analyst at a publicly-traded business services firm in their Corporate Development group. How difficult would it be to move to a smaller/middle market PE shop?
Thanks,
Might be a bit challenging unless you hv had IB experience
I have 9 months of buy-side experience(internship) at small shop and 1 year of IB experience(internship) at a boutique sell-side firm.
Ok. Your IB experience should be helpful. Network extensively and pitch your story right
Thank you for your input Nicole!
how does ibanking skillset transfer to hf’s? aren’t these primarily focused on illiquid investments, no deals?
Tough call from IBD to HFs because skills & environment are different. Knowing how to value companies are useful in HFs though you need to know the different strategies and have a passion in the public markets to do well in a HF.
Love this article and have a question, althouh it may not be totally related. I have degree in engineering and have be working in IT for more than 10 years but just found out my real passion is on the financial sectors covering stocks and companies. Do you think it’s too late for me to get into the field (I am late 30′s)? If I get an MBA, will it help to land a job as ER with no prior experience and what would be the starting salary like if it happens? Any advice will be appreciated.
No if this is truly your passion. But I’d just try to get the job now and not do an MBA. Network extensively with research analysts who cover the financial sectors – find out their contact info by online sources such as Institutional Investor Magazine and financial companies’ investor relations web page. Starting salary – depends on what level they employ you at. If you’re 1st year Associate, base may be around ~100K+ and bonus (I may be wrong cause I don’t have the stats on hand)
Thank you Nicole.
This is a very well written article.
I’ve been working in the retail banking sector as a project manager (IT) for 5 years. My passion, as I have come to realize, lies in finance and particularly the buyside. However I am 29 now. Is this too late to get into the industry? I’ve thought about doing an MBA from a good b-school but by the time I’ll graduate I’ll be 32. How will that play as a factor getting a buy-side job? Are these realistic expectations?
Thanks for your help
SD
http://www.mergersandinquisitions.com/age-investment-banking/
This article shd help. Re buy-side roles depends on what roles you are looking for. You shouldn’t be too old so don’t worry too much about it
For partners at PE firms, you can replace senior management so in a way, you could control companies.
Hey, thanks for the info, I’ve been doing some research on hedge funds for some time now, but there is a question that I can’t find the answer to anywhere..At what age can I start my own hedge fund and how much will I make from my hedge fund by the time I’m around let’s say 33?
I think you’re asking the wrong question (re how much $) if you want to start your own HF, or pursue a career in a HF.
I believe you can start your own fund as long as you are above the “legal” age.
How much you make depends on how good and passionate about the markets you are; but if you lack the two, I wouldn’t suggest you to start the fund
I have a question around age. I am currently doing my MBA and won’t be complete for two more years. Once completed I am contemplating changing careers (currently in senior project management for construction) into Investment Banking, Hedge Funds or Private Equity. I will be 41. Does age impact on opportunities (positively or negatively) and does twenty years of experience (mostly in management) add value or have no impact whatsoever.
Given my age and life experience once my MBA is complete is there a particular angle or path that I should be looking into.
Regards,
Paul.
Yes – not necessarily positive. Most bankers are looking for people who have relationship w issuers and senior m’gmt of corporates/PE funds at your level.
Twenty years of experience in m’gmt might not be directly relevant to senior IB roles unless you’re talking about IB strategy & COO roles but you’ll have to have some prior IB experience to work in such roles.
I’m not quite sure what your background/expertise in construction is so I can’t advise you on what areas to look at in finance, and it will be hard to address this issue on this comment forum.
Thanks for a great article.
What do you think about moving into banking or asset management from financial consulting? E.g. Oliver Wyman FS and McKinsey Corporate Finance?
I have three years of FS consulting experience but want to do something else and looking into VC, PE and Hedge Funds. What do you think about my chances?
Thanks //Daniel
I think it should be an relatively easy pitch depending on what sort of work you’ve been doing and clients you’ve been exposed to. I’d say easier switch to IB probably less to to VC/PE/HF though readers may have better insights
Great article.
I’m an attorney with corporate bankruptcy experience who is looking for a career change, and would like to get into buy-side with a PE firm or hedge fund, ideally distressed debt investing. I’m 31 with no financial experience, though I did major in economics and minor in mathematics in undergrad. What steps can I take to maximize my chances of breaking into this field? I’ve considered applying for an MBA, but I’m reluctant to go back to school for 2 years at my age. Would a masters in applied mathematics or finance be more beneficial?
Regards,
Carl
A masters in finance/part-time MBA might help but I’d probably just network aggressively with people in those areas and see if there are any openings which suit your background/skills
The CAIA exams focus quite a lot on PE. Does having the CAIA designation improve your chances of breaking into PE?
Hi Brian,
Quick question that you’ve addressed more generally before, I just have a more specific variation.
I currently work at a MM M&A Boutique focused on Technology. I’m considering exit ops mainly in the VC/Growth Equity realm, but I’ve recently been warming up to the idea of working at a hedge fund that makes “VC-like” investments.
1) How realistic would this transition be?
AND
2) More importantly, can you suggest any resources to find/screen for these types of hedge funds?
Thank you so much! Love the site!
1. I think this transition is possible though I believe you would have to demonstrate your knowledge of HFs and understanding of how to make VC-like investments
2. http://www.barclayhedge.com/products/best-hedge-funds-database.html
http://www.eurekahedge.com/
Hello, an unusual question for you. I got a job at an Event-Driven Hedge Fund straight out of University, as a trader/grunt. After two years I know I want to be more involved on the analyst side but I obviously don’t have the modelling skills that someone with M&A experience. Interestingly of the senior guys at my firm, only one of four is from an M&A background and he is the most junior of them. My question to you is how do I gain those skills since I have no structured programme, are there courses I can take and then apply the knowledge gained at work? I am enrolled in the CFA and have just finished level one, but I notice you are not a fan…any advice?
Check out http://breakingintowallstreet.com/biws/
Brian,
Could you please shed some light as to what exit opportunities are available for GS IBD associates? My understand is that there are fewer options (i.e. PE is harder to get) than at the analyst level, but I’m not planning on staying more than two or three years if I decide to go down that route and would like to know what else might be out there.
Thanks
MBA, starting your own business, HF, PE (yes it happens), doing something in a completely different industry