What You Do In Equity Capital Markets, Part 2: The Equity Syndicate
We continue our discussion of different groups in investment banking today by learning all about a group you might not have even heard of before: the equity syndicate.
To make things even more fun, the interview you’re about to read was conducted with a reader who works in Asia – so you’ll learn about how it’s different there as well.
What Would You Say… You Do Here?
Q: Let’s start with the basics. I know pretty much nothing about the syndicate – what do you actually do?
A: I would describe it as “halfway between sales and equity capital markets.”
We talk to the sales people who pitch equity offerings, to sales-traders, and to the bankers who analyze the companies, and we coordinate the processes of initial public offerings and secondary offerings.
We keep everyone in the loop and make sure that all sides understand each other.
In terms of tangible work, we multi-task a lot: we speak to salespeople to get market color, speak to investors to tell them about the deal (as we advance in level), and track institutions that are interested in and have subscribed to offerings.
Q: You mentioned before we even spoke that it’s a very niche market. How small are we talking?
A: I don’t have exact numbers, but I wouldn’t be surprised if there are just over 100 people worldwide, altogether, in equity syndicate groups.
Even at large banks it’s common to have only 3-4 or even less at each desk, though that number might be higher in the US and more developed markets. Some banks might not even have a distinct syndicate desk.
Since the groups are small, many banks don’t even have junior people – it’s all just senior bankers and they outsource a lot of the grunt work.
Breaking Into the Syndicate
Q: With so few people, I’m guessing that you don’t exactly recruit for the syndicate right out of school. How do you get in and what’s the recruiting process like?
A: You’re right that fresh grads are pretty rare – banks don’t need that many people, and anyone working full-time in the field has been there a long time.
Pretty much all the hiring comes from lateral hires – people who have already worked in ECM, corporate finance, or sales, and who now want to make a transition.
Even this is not common, because there isn’t that much demand for fresh blood each year.
Q: What about the interview process? Are we talking about just the standard banking questions or is it quite a bit different for the syndicate?
A: You’ll get some of the same questions as in standard banking interviews, but there is not as much emphasis on the technical side because we don’t do as much valuation or modeling work – they’re more interested in your sales and communication skills as opposed to how well you can model.
However, they do stress “attention to detail” since you need to get order numbers and everything else in your allocation book correct – so you will be tested on that.
“Fit” questions will test how well you can coordinate and organize processes rather than your ability to crank out Excel 100 hours a week.
Example questions you might get in equity syndicate interviews:
- What do you think the IPO market will do in the next 6 months?
- What sectors are most likely to issue equity in the next year?
Q: So how do you find out about any of those if you’re not already working in the industry?
A: It’s really tough, which is why almost everyone in the equity syndicate comes from other groups – knowledge of market conditions and different institutional investors, banks, and prospective clients is critical.
It’s tough to know all that unless you have access to resources like Bloomberg and Dealogic.
You can access news on recent IPOs and block offerings from sources such as FinanceAsia, though that is a subscription-based service and it can get pricey.
A Day in the Life
Q: So what’s a typical day at work like? How much do you work and what do you do?
A: Analysts usually get in around 7:30 and work for 12-13 hours every day.
They can work a lot more than this – sometimes 15+ hours or staying up all night – during book-building, pricing, and allocation time.
Each day starts off with a morning call, where the sales people discuss the market and current offerings. As an Analyst, you are expected to listen to those calls.
After that morning call, when we are on a live deal, I spend each morning sending out term sheets on deals to sales people, coordinating analyst meetings, and sending term sheets to investors.
When we aren’t working on any live deals, I help out with updating databases, tracking offerings, and pitch books.
Multi-tasking skills are really important because I’m often asking the sales people for investors’ views on a company, sending out updates to sales people and bankers, staying up-to-date on current equity offerings in the market, and creating Excel spreadsheets to track companies’ performances.
Similar to Equities, the work you do is more of the “Take 15 minutes and do this quick task while you’re juggling those other tasks” rather than “Let’s work on this extended project for 6 months.”
Q: You mentioned before that you work on IPOs – is that most of what you do, or are there other deal types that you’re exposed to?
A: The 2 main types of deals are IPOs and blocks – also called follow-on offerings – where a company that’s already public decides to raise money by issuing more stock.
The process is similar for both of those, but IPOs require more work because the company has to be approved by regulators before it can go public.
One difference between the two is that you might get more downtime with follow-on offerings, because you have to wait for companies to decide whether or not they want to issue stock depending on what the market has done that day.
But you also might have to work all night and be ready to start again at 7 AM in order to ensure the allocation process is smooth – so just like traditional banking, the workload varies a lot.
Q: Right. So going back to IPOs, what do you actually do? Do you help out with due diligence, or are you just in charge of building the books?
A: The corporate finance team does the due diligence – we’re in charge of investor education, book-building and the allocation process.
That involves coordinating meetings with research analysts, coordinating road show meetings with the management team, knowing which investors are interested in investing in the deal, how much they’re investing, making sure that all the orders are entered correctly into the books, and that investors are allocated properly.
Attention to detail is even more important than in other areas of banking, because you need to proofread thousands of lines when reviewing these books, and a single “0” makes a huge difference.
I said I usually work 12-13 hours a day, but when we’re in the final stages of a deal and I’m building a book, that can often escalate into 2-3 AM nights or even all-nighters depending on what’s involved.
Sole book-run deals – where we’re the only bank rounding up investors – are easier to manage, while joint book-run deals – anything involving other banks – require more communication and coordination.
Beyond the book-building process, you monitor communications between different parties quite a lot as an Analyst. For example, we need to make sure that the sales people are representing the company truthfully but are also “selling” our client effectively.
We also need to make sure that all confidential information is kept confidential, and we have to consult with bankers to find out what a company’s real “story” is.
Co-Workers & Co.
Q: So it sounds like you need to interact with other people at your bank quite a lot. Can you give an example of how you would “monitor” communications?
A: Sure. Let’s say that the client wants to go public at a 15x P/E multiple. Bankers would come to us and say, “Is that reasonable?” and then we would ask the sales people to ask investors about their views of the company and to indirectly figure out what kind of valuation they would invest at.
Then we channel this feedback back to the bankers, being careful not to say too much or too little to anyone.
Another example: let’s say that investors have a certain concern over the company or what’s in its marketing materials. The sales force would then come to us, raise this concern, and we would go to bankers and say, “You might want to address this point in the materials you create for this company.”
In Asia – especially mainland China and South Korea – quite a few companies are dodgy, have spotty financial records, and avoid answering questions directly, so this function is very important here.
Q: You mentioned earlier that some equity syndicate desks don’t even have junior people. If that’s the case, what do senior bankers do, and how do your responsibilities change as you move up the ladder?
A: The senior people talk to investors directly, maintain relationships, and call investors to ask about their views on certain sectors. They also work closely with lawyers, because there’s a lot of overlap with the law in equity capital markets – all new issuances need to be legally valid.
The junior bankers, by contrast, do most of the grunt work in terms of building books, channeling feedback, and helping out with marketing and pitch books.
Associates and VPs become more involved with the allocation process – deciding what percent of a company should be allocated to different investors and deciding who gets what. There’s more art than science to that, so you need to be more senior to have a good handle on it.
Once Upon a Time in Asia
Q: You mentioned just before how many companies in Asia are “dodgy” – beyond that, what other differences do you see in the equity syndicate in Asia vs. other regions?
A: For one, training programs here are not as well organized as in the US and Europe – so you need to pick up a lot more by yourself once you start working.
The corporate cultures are also very different, and companies here are not as familiar with the capital markets and how an IPO works. Many companies in the US know IPOs very well, but firms here sometimes need us to hold their hands through the entire process.
Q: Do you need to know a local language to work in the syndicate in Asia, or is just English ok?
A: You have an advantage if you know Mandarin and you’re in Hong Kong working with companies in mainland China, for example, but it’s not required since you’re usually dealing with other syndicate desks (who are mostly expats) and other global desks.
In the syndicate everything we do is global, and we’re working with investors from all over the world – the lingua franca is English, so the ability to speak fluent English is critical.
In other parts of an investment bank, you can get away with knowing only passable English and being a native speaker of another language – e.g. Mandarin which is very important if you work in a region like Hong Kong, which is considered the hub of the Asian financial market.
But in the syndicate if your English skills are not 100% flawless, forget about it.
Pay & Exit Opportunities
Q: Let’s talk about money. How much do you make in the equity syndicate?
A: Base salaries are standardized at large banks and are the same as what you’d get in other areas of investment banking. You may also get a housing allowance depending on where you are in Asia.
I can’t say with 100% certainty how bonuses compare, but overall they’re slightly less than in investment banking – still good numbers and definitely better if you look at it on a $ per hour basis.
Q: What about exit opportunities?
A: Sales, equity capital markets, or continuing on in the syndicate. Everything we do is qualitative and relationship-driven, so it might be difficult to get into quantitative roles at private equity firms coming from here.
Headhunters – especially in Asia – are also useless if you’re at the junior level in the equity syndicate. They’re more focused on senior bankers who actually have client lists and relationships, and they don’t care too much about juniors.
Q: What about hedge funds? I’d imagine there’s some overlap there.
A: It depends on the type of fund and what your role is. Most funds are looking for people with due diligence and transaction experience – which is more quantitative – so you’d come up short by that standard.
If you wanted to work at a hedge fund, it would probably be in more of an investor relations or fund-raising role. You can also work in PE as a “placement agent,” but most placements agents have many years of experience.
Q: Great, thanks for your time.
A: No problem – enjoyed speaking with you.
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