Investment Banking: Pakistan Edition
But this is such a good interview and has such specific information that I wanted to publish it anyway.
Plus, the interviewee has been a long-time reader of M&I and captured the personality of the site very well. So let’s get started and learn all about banking, PE, recruiting, and the lifestyle in an emerging market that might be completely off your radar.
Q: Can you tell us about your background?
A: I play the drums. I love buffalo wings with sour cream and ginger ale. I love stargazing. I’m a huge Tolkien fan. I find jazz very relaxing. I just discovered a hidden passion for photography and hopefully I’ll be traveling to Iceland in a few months after I buy a Canon DSLR.
I was born in Abu Dhabi and raised in Dubai. My father retired from his marketing job and we moved to Islamabad (Pakistan’s capital), where I completed high school and undergrad. I was a very distracted student during my O/A Levels because I really didn’t know why I was studying and what I wanted to do, so I definitely lacked direction for a time.
But during the first year of my undergraduate, I got really interested in corporate finance and M&A – so I actually performed decently and did much better than in high school.
After graduating, I networked my way into an investment banking analyst position at a bulge bracket bank in Karachi (Pakistan’s finance capital), and then I moved into private equity in the same city.
Q: Most Westerners know very little about Pakistan aside from what’s reported (accurately or inaccurately) in the news. What is the country really like, and how is the finance industry there different? Are the rumors of economic collapse / bankruptcy true?
A: A recent Newsweek cover described Pakistan as “The World’s Bravest Nation” – after describing it 3 years earlier as “The World’s Most Dangerous Nation.” I know the general perception is that it’s a country filled with corruption, religious fundamentalism, and no roads or women.
There is an element of truth to those claims, but for the most part we’re just regular people and most of what you read about in the news corresponds to a very small part of the country.
So don’t believe everything you read about the claims above (especially the part on roads and women) or the frequent accusations of terrorism – there are isolated extremists here but they are not representative of Pakistan at large.
Economically, we were always an underdeveloped country due to corruption from previous governments – but during Musharraf’s 10-year rule we were elevated to “developing country”status. Since that time the rulers have been questionable, so the progress has been disappointing since then.
The rumors of economic collapse are untrue. We’re not in the best shape right now, but we’re far from bankruptcy – the US and its allies also have too much of a stake in the country to let a bankruptcy happen. And we’re part of an IMF program that has pledged billions to us over the next 3-4 years.
Overall finance is still very much in a growth phase here, and private equity is at a nascent stage; Islamic finance is developing rapidly and corporate finance is also thriving. Hedge funds don’t exist yet, but many banks do have investment banking divisions and a handful of research and brokerage houses here offer investment banking and related services.
Q: What’s different about recruiting there? Do they prefer certain backgrounds or certifications?
A: The recruiting process for both IB and PE is highly unstructured.
Unlike the US or Europe where certain “paths” are preferred, here you can transition from almost any finance-related field into IB or PE.
I know people who have gotten into investment banking from industry, management consulting, and research, and people who have gotten into PE from Transaction Advisory Services, research, middle office trading support roles, and corporate banking.
My VP (from the US) would always tell this analyst at my bank that the CFA was completely useless in banking, but in Pakistan people have been conditioned into believing that a CFA + an accounting degree is the key to achieving unprecedented glory.
Wheeling & Dealing
Q: You were at a bulge bracket bank there – do the other global bulge bracket banks have presences in Pakistan, or are local firms more common?
A: It’s a mix of both. JP Morgan has been here since the early 90’s, Citi even earlier than that, and Credit Suisse has been here since 2008. UBS and BoAML operate through local affiliates, but aren’t officially here.
Even though they’re bulge bracket banks, they usually work on deals worth around $100 million USD – sizable for here but small by US standards.
M&I Note: Middle market banks in the US would do deals of this size; most bulge brackets focus on $500M+ or $1B+ deals, though they do occasionally go lower depending on the market.
Since that’s “the bar” for bulge bracket banks, smaller, local firms – called “investment houses” – advise on deals worth less than $100 million USD.
They offer everything from research to mutual funds to M&A advisory and capital raising. Two of the largest investment houses also have consumer and corporate banking divisions that they use for syndications.
Pure-play boutique investment banks are still very rare here – off the top of my head I know of just one firm that offers only M&A advisory and restructuring services to clients.
Q: What types of deals and companies are most common in Pakistan?
A: The breakout for deal types is something like this:
- Debt Financing: 70%
- IPOs: 15%
- M&A: 10%
- Restructuring: 5%
M&A is most common in the banking and telecom sectors. Here’s a table of M&A activity from 2002 – 2010 that I’ve been updating from time to time:
M&A in Pakistan rarely takes place to create value – this consolidation in the banking sector is driven by regulatory requirements (specifically higher capital adequacy requirements).
The actual rationale for M&A activity would be more interesting to look at – in my opinion it’s something like the following:
- Regulatory: 65%
- Gain Market Share: 20%
- Divesting Operations or Exiting from Pakistan: 10%
- Private Equity Investment: 5%
- Value Creation: 0%
The government also has a massive privatization program in place (the numbers above exclude this, by the way) and so all the bulge brackets submit RFPs (Requests for Proposals) to the Privatization Commission for each deal.
Even some banks like Goldman Sachs, Morgan Stanley, and UBS that don’t have a direct presence in Pakistan will fly in, submit their RFPs, pitch, and fly out – they’re known as “parachute bankers.”
Some local firms also work on these privatization transactions, while the bulge bracket banks focus more on attracting institutional investors via road shows or finding international buyers for assets that the government is divesting.
Here are lists of completed and upcoming privatization transactions in Pakistan:
Q: You mentioned how you networked into investment banking and then into private equity – how is it different in Pakistan? Do informational interviews and cold calls still work?
A: Right, so just to give you a brief overview first of how I networked my way in:
I went to a non-target school, but I did have 5 internships and decent extracurricular activities, as well as the resume template on your site. And I knew a lot about investment banking and private equity and kept up with global M&A deals and private equity activity via the NY Times Dealbook site.
A year before my graduation, I cold-called the bulge bracket bank I worked at – they’re known for only hiring summer interns from top US and UK schools, so it was a bold move.
A man picked up and I asked to speak to someone regarding summer internship opportunities in investment banking – the guy replied with, “I’m the guy” and he turned out to be my future VP.
I asked about the recruiting process for summer internships and he said they had already gotten started with interviews – but to email my resume anyway so he could send it to the team.
I did that, and about an hour later he replied and said, “When will you be able to join us for an internship?”
Q: Wait a minute, so you actually got an internship just by cold-calling a bulge bracket and asking for one?
A: Far from it, though that’s what I actually thought at the time – I didn’t even get an interview. I think he was just asking that to see when I would be free for an internship rather than actually giving me one on the spot.
He said they really liked my resume but were looking for a winter intern, which didn’t work for me timing-wise due to classes.
Over the next 5-6 months, I stayed in touch, emailed him on his birthday a la Bud Fox, added him on LinkedIn, and even sent the occasional random link.
Q: So you actually pinged him consistently – that’s interesting because I usually tell readers NOT to worry about constantly staying in touch and to focus more on making a good first impression and then asking for what they want when the time comes.
A: Right – you do have to be subtle if you want to take this approach. I didn’t want to give the impression that I was stalking him or wanted to be his best friend.
I did this more because I had an uphill battle given my school and background, and because there just aren’t as many banks in Pakistan – so it’s not like the US where you could easily go through hundreds or thousands of contacts to find the most helpful bankers.
Q: So what was the final outcome here?
A: In May I called him again, sent him my updated resume and “reiterated my interest” for an investment banking analyst position.
Despite being up against 100+ candidates from target schools, I was interviewed and offered the position.
What worked in my favor?
- I was myself and had the ability to laugh at myself – I didn’t act like some super-genius with perfect grades who claimed to know everything about finance.
- I had a burning desire to get into investment banking – I read everything and anything related to banking that I could find and this came across with how much I knew about the industry vs. the other candidates.
Q: What about your move into private equity? Did you go through a headhunter there or was that also networking?
A: Networking, once again. I cold-called my current PE firm’s Dubai office and spoke to a Partner there – we chatted about how Dubai has changed over the years and about the Middle East PE market in general.
I sent my resume, he forwarded it to the Partner in Karachi, and I interviewed a couple times and was offered the position.
M&I Note: This may seem ridiculous, but keep in mind that in certain parts of the world they are looking for very specific people and recruiting is less structured. It would be tough to pull off the scenario above in the US, but the same is not true in emerging markets.
Q: So it sounds like overall, the standard networking strategies still work and may even work better since recruiting is so unstructured in Pakistan.
You mentioned before how knowing so much about investment banking gave you a big advantage – but doesn’t everyone coming out of target schools there know the industry quite well?
A: No! A lot of students from top schools have absolutely no idea what investment banking or private equity are.
I’ve interviewed candidates from top schools here and this is how interviews often go:
- Me: What do you think investment bankers do?
- Interviewee: They make investments so that you get higher returns.
- Me: Higher returns… um, ok, and why do you want to get into investment banking?
- Interviewee: I’ve heard really good things about investment banking and [Interviewee inserts objective from his/her resume and “pitches” it] and how much I can learn there and bring my skills to the organization.
- Me: Right, we’ll let you know.
One time I had a PE candidate try to convince me that he was a “private equity investor” because he invested in the stock market.
I’ve come across only one candidate who made a convincing argument for why he/she should work in investment banking or private equity. And I’ve met hardly anyone else who has networked his/her way into IB or PE here like I did.
But as you can see from my story, it’s definitely possible – if you’re hungry and motivated, you can do pretty much anything.
Private Iniquity, Pay, and Exit Opps
Q: Not to sound like those annoying kids in Harold & Kumar, but what’s it like working for a PE firm there? What types of companies do you invest in, and is your job more about sourcing or execution?
A: Work is very unpredictable, which makes the hours unpredictable as well. I’ve pulled all-nighters, and I’ve found that there is a massive cultural difference / work ethic difference between local firms and international firms.
PE firms here do not focus on specific sectors – they’ll invest in anything from green/brownfield projects to mature companies and even distressed assets.
LBOs are highly uncommon here and so most of these investments are minority stake acquisitions instead.
Work is a function of sourcing and execution – I’d say I spend 20% of my time on sourcing (looking for new investments) and 80% on execution (doing due diligence, modeling for investments, and coordinating our team).
Q: As with other emerging markets, I’m assuming that salaries and bonuses are lower on an absolute scale but higher on a relative basis if you take into account the cost of living – is that accurate?
A: Yes, definitely true. In a good year, an analyst at a local firm can make 10 to 15 times his monthly pay with his bonus (around 80% to 125% of his annual pay).
In average years an analyst’s bonus might be around 50% of his annual pay – which is quite a lot of money in Pakistan.
Q: And are your co-workers all from Pakistan or are you starting to see immigrants there as well?
A: Right now there are hardly any immigrants – it’s 99.9% Pakistani co-workers.
Q: What are your future plans?
A: I’m planning to attend business school in 2 years, ideally at Wharton. I do want to stay in PE, and post-MBA I’d want to go to a larger firm in the US and work there for a few years before returning to the Middle East or Pakistan. If all goes well, I might start my own buyout fund here one day.
I also want to take up stellar and extragalactic astronomy – it has always fascinated me. And if I have enough capital, I want to start a theme-based restaurant at some point.
Or I could just take the CFA…
Q: Please, don’t.
A: Yeah, I think my own restaurant would be more fun anyway.
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