Money, Hours, Models, Bottles: Investment Banking in New York, California, and Everywhere In Between
“Are you guys even in the office past 8 PM? Whenever I call no one’s there.”
“New York is hella lame, people are so much better out here.”
“If you say ‘hella’ again I’m going to make you pay for the bottles next time – and maybe the models too.”
“Fine, I’ll do some research and see what I can send over. NY is still overhyped, though.”
No, it’s not a short story or a new TV show about bankers – it’s a banker from NYC and one from San Francisco talking to each other.
And you read that headline correctly: today you’ll learn how banking differs in different regions of the US rather than going off on adventures to distant lands.
As one reader pointed out a while back, “Hearing about all these different countries is great, but what about how banking is different on the east coast vs. west coast of the US and everywhere in between?”
The Most Common – and Wrong – Arguments
Many people claim that the pay and hours differ significantly and that New York is more “hardcore” than other regions.
That makes sense intuitively: New York is the biggest financial center and the biggest deals tend to happen there.
But in practice, these differences are greatly exaggerated – pay is standardized at the junior levels in finance and bonuses depend more on your bank and group rather than the city you’re in.
At the senior levels, geographic differences become more important because certain offices have better deal flow and clients, and senior bankers’ bonuses depend 100% on performance.
New York bankers like to argue that they work way more than people in other regions, but there are no scientifically controlled surveys to support these claims.
Yes, maybe the hours are somewhat worse since more deals happen there – but we’re talking a difference of 85 hours per week vs. 90 hours per week: you still won’t have a life.
So the more substantial differences have nothing to do with pay or hours, but rather the industries covered, the cost of living, and the exit opportunities.
And yes, I’ll address the ever-popular models/bottles, networking, and a few other points as well.
This is the main difference – banks in the top 5 cities for finance in the US focus on a different industry:
- NYC: Diversified
- Chicago: Industrials
- Houston: Oil & Gas
- San Francisco: Technology / Healthcare
- Los Angeles: Gaming & Lodging / Media
There is no “best” because it depends on what you want to do in the future and how certain you are of your career.
Some of these fields are more specialized than others; something like oil & gas requires more specific knowledge than tech or healthcare since energy companies play by different rules and require different valuation methodologies.
So if you’re already interested in a specific industry, it may be a good idea to start out in the region that focuses on that industry – but if you have no idea yet, New York is the safest bet.
Just as actors get typecast, you will get more and more pigeonholed as you move up the ladder, so you need to consider these options carefully.
One friend worked on a telecom deal at a small VC firm, then got placed into the telecom group at a boutique bank, and was then placed into the telecom group at a bulge bracket bank.
Effectively, he became “the telecom guy” all because of one small deal he worked on ages ago.
And it’s even worse once you move beyond banking: good luck interviewing for that hedge fund that wants people with European telecom merger arbitrage experience if you don’t have any.
But What About Deal Flow?
“But,” you rightly point out, “There’s a difference between deal flow, hours, and industries covered – even if you’re working a lot, you might just be building pitch books all day. And what if your industry isn’t ‘hot’ at the moment?”
I don’t disagree with you there, but it’s almost impossible to determine deal flow of specific offices without talking to real people.
So if you’re such an overachiever that you’re going to pick your bank and group based on deal flow and exit opportunities, go talk to people at the different offices you’re considering and see what they say – but keep a critical eye open because they’re likely to oversell you on everything.
And no, I’m not going to rank cities and groups by deal flow here since that changes quite frequently and since you’re likely an obsessive-compulsive person already if you’re reading this.
Cost of Living
In ancient times, New York was the most expensive city in terms of real estate, taxes, food, and so on.
Now, however, San Francisco is actually more expensive, or at least as expensive, due to the tech boom and the number of high-paid startup employees there (as of 2015).
So you are not likely to save much money during the year in either place; it’s also a bad idea to live in New Jersey or another location outside the main city to save money, since you might go insane in what little free time you have.
The “cost of living” ranking looks something like this:
- NYC ~= SF > LA > Chicago > Houston
You will save the most money working in Houston because Texas has no state income tax, rent is ridiculously cheap, bottles are less pricey, and even the models are less demanding and will give your wallet less of a workout.
Cost of living shouldn’t be your top concern, but you should be aware of it.
Finance people are notorious for making millions of dollars and then blowing it all on luxury spending – so pay attention if you want to retire on more than $50K in that savings account you forgot about.
One other note: driving will be required in most of these places, especially in a city like LA where there is no public viable transportation.
So if you hate driving and owning a car, your best bet is New York.
NOTE: Ride-sharing services such as Uber and Lyft are actually changing this dynamic.
If you live relatively close to the office, you might be able to take one of those to and from work every day and gain some peace of mind in the process.
The main problem with exit opportunities is that it’s hard to interview when you’re far away.
You need to take time off work by using questionable excuses, hope people don’t notice your repeated absences, and then visit the firm enough times to seal the deal.
Since New York to SF or LA is a 5-6 hour trek, it’s not easy to hop from banking on one coast to the buy-side on the other coast. Pretty much all the analysts I knew in California stayed there, and pretty much all the ones in New York stayed on the east coast.
So you’re more likely to stay in your first region unless you can pull off in-person trips or interview entirely via video conference (unlikely for traditional exit opportunities).
Again, people like to argue that New York has “better” exit opportunities, but plenty of analysts on the west coast and elsewhere get into mega-funds as well; it’s just that they work at local offices rather than in NYC.
One legitimate difference is that there are more exit opportunities in New York just because it’s the biggest financial center.
And you also run into the pigeonholing problem if you start out in another region: go to Houston and you’ll more than likely recruit only for energy-focused PE firms and hedge funds.
But aside from those differences, the actual quality of exit opportunities doesn’t differ as much as you might expect.
Networking opportunities are another more significant difference, and one that people overlook all the time.
Since NYC is much bigger than the other regions, you’ll simply meet more people there and you’ll be better equipped to network your way into other roles.
Just as with other financial centers like Hong Kong and London, sometimes half the people you meet in NYC will be in finance (the other half will be “aspiring” artists or models, which is great for you as a financier).
How much does the quality of networking really matter?
It depends how certain you are of your “career path” – if you’re interested in doing tech banking and then doing venture capital in California, you’re better off starting in SF and networking with tech and VC groups there.
But if you have no industry preference, you’ll gain more options by starting out in New York.
How to Satisfy the Models
Ah, now to the fun part.
The main difference is that the New York models tend to be higher-maintenance, more expensive, and more demanding; LA comes close since everyone is required to get plastic surgery, but you’ll still spend more overall in NYC.
But flashing around wads of cash also doesn’t impress as much in New York because $200K is barely middle class – not enough to satisfy models who are expecting a new bag every day.
In all seriousness, you really will spend a lot more money going out in New York if you actually enjoy it.
LA and SF can also be expensive, while Chicago and Houston are more reasonable. Some also argue that people in the South and Midwest are “friendlier” but I don’t want to get into a debate over that one.
I’m not qualified to comment on the quality of men in each place, other than to say that SF is probably the worst place to find hot guys unless you’re into tech guys with a ton of money from startups.
(Yes, a female friend recently asked if there were a lot of tall, muscular blonde guys in SF and I started laughing.)
“Aha,” you say, “But even if the pay and hours are not much different, surely they must ask completely different interview questions in each region, right?”
Sorry to disappoint, but no, not really.
No one sits down and says, “Well, in Chicago we should ask this specific set of questions but in Houston it will be completely different.”
Once again, the main difference comes down to the industry focus: you don’t need to be an expert on the industry of focus in each city, but you should know something about recent deals and any industry-specific valuation methodologies.
It’s not really “easier” or “harder” to get into finance in different cities – there are fewer spots outside of New York, but there’s also less competition.
Yes, there are banks in places besides NYC, Chicago, Houston, SF, and LA – but the offices tend to be much smaller and they don’t always recruit on-campus.
Other cities with a presence in finance include Boston (similar to SF due to the industry focus), Washington, DC (aerospace/defense), Atlanta (lots of wealth management), Miami (healthcare, Latin America), Dallas (got equities?) and maybe a few others.
I can’t recommend starting out in these places if you have the option to go to one of the 5 major centers listed above.
Maybe if you’re interested in only a very specific industry, like aerospace and defense, then DC makes sense – but you’ll be at a disadvantage in terms of deal flow and exit opportunities.
A lot of boutiques are also based in other regions, so you should jump at the opportunity if you have nothing lined up in a bigger city – but otherwise, stick to the top 5 above.
Outside of IB: Sales & Trading, Hedge Funds, and More
You run into the same differences in other fields like private equity, sales & trading, hedge funds, and asset management: a different industry focus and more geographically limited exit opportunities.
Some cities also tend to be stronger in certain fields.
For example, Chicago is great for prop trading and the SF Bay Area is the spot to be for venture capital.
One downside to any type of markets-based role such as trading or hedge funds is that you have to wake up very early if you’re on the west coast because you work New York market hours.
If you’re fine waking up at 4 AM, getting off work at 5 PM, and sleeping at 9 PM every night, you might be OK; if you’re not a morning person, though, you may want to stay away.
So, Where Should You Work?
If you have absolutely no idea what you want to do and don’t mind spending more money, New York is your best option – there’s more networking, more opportunities, bigger deals, and you don’t even have to drive.
But if you have a more specific goal such as going into VC, joining a tech startup, or working in the oil & gas industry, you could make a good argument for starting out in a different city.
There may be slight differences in pay, hours, and how much you save in your first year (with bigger differences on that last one), but those don’t matter much in the long-term.
To figure out which office has the best deal flow, network with bankers and ask directly – that information changes quickly and you’re always better off going straight to the source.
And whatever else happens, make sure you don’t end up doing equities in Dallas.
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Bottles and Bottles? How You Really Win Clients and Land Mega-Deals as an Investment Banker
Why does the mainstream media hate Wall Street so much?
You can think of dozens of reasons, but one of the biggest is that they don’t understand what bankers really do to earn their fees.
They see news of million-dollar bonuses and assume that financiers earn those bonuses by sitting around and playing Monopoly.
But you don’t earn massive fees by playing board games all day – it’s a process that takes years, which is one reason why bankers make the money they do.
And the infamous “pitch” has very little to do with it.
It’s All About the Pitch, Right?
The most common, wrong suggestion I’ve seen before is that “Bankers win clients by pitching them.”
But that’s like saying that you got into Harvard or Oxford by submitting a really good application – technically true, but not the full story.
Yes, the application is critical and if your essays suck, you’re screwed – but you got into a top school because you spent years developing the skills and experiences to do so, and you then presented them in the best possible light.
It’s the same with winning clients as a banker: your pitch needs to be on-point for you to win the deal, but the process of putting yourself in the position to pitch for the deal starts long before that.
What Really Happens
As you move up from Associate to VP and beyond, gradually you’re tasked with more and more sourcing work: finding potential clients, getting to know them, and then pitching for a deal when the time is right.
Managing Directors spend almost no time on deal execution – unless it’s a massive transaction that requires their involvement – and instead spend most of their time on finding new clients and serving existing ones.
If you already work with a company on all their M&A deals and your bank has been advising them for the past 20 years, you’ll probably continue to do so in the future.
Like legacy admissions in university or Roger Sterling and Lucky Strike, it’s a good bet that you’ll receive the benefit of all that history unless you make a colossal screw-up.
So it’s more interesting to look at how you find new clients – companies your bank has never worked with before.
This entire process is more applicable to smaller firms than to bulge bracket banks, because there the “legacy” factor is high and you mostly work with huge companies that everyone already knows about.
But even at huge firms, you still need to find new clients because existing companies get acquired, merge, and go out of business all the time.
In sales, a “lead” is just a potential customer – someone who might sign up for the products or services you’re offering.
It’s the same idea in banking, but since your leads are fewer in number and are worth much more, some strategies don’t work so well.
What Doesn’t Work
Strategies like online marketing (paying for ads on websites, Google, Facebook, etc.), TV/radio/direct mail advertising, and posting flyers would never work.
It may sound silly to even point this out, but I’ve actually seen some banks use Google AdWords to market themselves to clients and I have no idea why they bother.
All these methods are too impersonal – it’s like walking into Armani and having a robot display a list of recommended clothes for you rather than having a real live person greet you, chat for a while, find out what you’re looking for, and then suggest something good.
When the number of clients is low and the per-client value is high, you need to get very personal to make deals happen.
PE / VC / HF Referrals
One way to do this is to go through your friends on the buy-side, see what portfolio companies they have, what sectors they’re interested in, and who else they’ve been speaking with lately.
Let’s say you’re an MD who has worked with a private equity firm for 10+ years. At your next catch-up meeting with them, you might casually ask how their portfolio companies are doing (translation: are any of these companies ready to sell, refinance debt, or go public?).
If the PE Partner likes you and wants to give you business, he might refer you to the CEO or CFO and say, “Hey portfolio company, this banker’s good – you should get to know him.”
Or if a deal is imminent, he might tell you directly: “They’re going public next year, and the pitch is coming up next month – we’ll be sure to include you.”
In tech and healthcare groups, venture capitalists are arguably more important and bankers get referrals to startups via VCs.
Just like with your own networking efforts, cold-calling is less effective than meeting in-person first or getting referrals – but sometimes it works.
You’re far more likely to see cold-calling at smaller banks where you have to fight for every deal – and if you’re a summer analyst there you might get tasked with poring through lists of companies and finding contact information.
Cold-calling is also more common at small and middle-market private equity firms, some of which are notorious for making their newly hired associates cold-call companies all day long.
Bankers also spend a lot of time on the conference circuit, meeting with executives at events (CES, Davos, etc.).
These are like information sessions: if you can stand out from everyone else and then follow-up appropriately, your chances of success go way up.
The real action at conferences happens offstage, so bankers skip keynotes and panels and schedule as many 1-on-1 meetings as possible during the day.
Wouldn’t it be nice if banks just called you when they wanted to hire someone?
When companies want to sell or raise capital, they sometimes contact banks directly – this scenario is much more likely when a lesser-known company wants to work with a bulge bracket bank and has no other way to get on their radar.
Sometimes investors also contact bankers directly and provide the introduction, especially if they’re pressuring the company to sell so they can realize their returns.
Wining & Dining: Building the Relationship
Once you’ve contacted or been contacted by the executives at this potential client, you need to build the relationship.
If it’s an inbound contact and they urgently need to sell or raise capital, you won’t do this and you may be asked to pitch for the business right away.
But if the deal is further off in the future, you need to take time to build trust and convince the CEO that you’re not just another Gordon Gekko or Patrick Bateman character waiting in the shadows to decapitate him and steal all his money.
You do that by:
- Coming up with acquisition ideas and meeting with the executives to discuss what areas they might want to expand into.
- Giving market updates to the executives and telling them what’s going on in the M&A or capital markets.
- Meeting casually for lunch or dinner to catch up on what the company has been doing and their future plans.
- Being “on call” to answer whatever questions they have, whenever they have them.
The tricky part is that you don’t get paid for any of this – and the entire process could take years before you see any revenue.
Sure, making $10 million on a single deal sounds great – but if it takes 10 years of relationship building to get there, the NPV is much lower than $10 million.
This is the slowest and most extended part of the “client-winning” process, and if you’re not interested in relationships, this is where you’ll fail.
But if you like meeting and greeting and can’t stand Excel, then you might make a great MD – even if you’re a lousy analyst.
How does a company decide when it should sell, buy another company, go public, or raise capital?
Sometimes it’s forced to sell by investors who want to realize their returns (Amazon / Zappos) – going back to our theme of NPV, the longer an investment stays unrealized, the harder it is to get solid returns.
Other times the executives reach the decision themselves – the CFO looks at their cash flow projections and realizes their burn rate is too high, so they decide to raise debt or equity.
And still other times, bankers “plant” the idea in the CEO’s mind.
While you don’t have to plant this idea in a dream within a dream within a dream within a dream, you do have to be subtle about it – going out and blatantly pitching an LBO won’t work even if you really want a PE firm to buy the company you’re speaking with.
Instead, bankers are more likely to make casual references to private equity firms and leveraged buyouts elsewhere in the market when they meet with the company to discuss other topics.
Over time, if the CEO and Board buy into the idea or show interest, the bankers keep selling them on it and gradually start to reveal more and more information.
The best bankers – the true rain-makers – are the ones who are best at “selling” the company on a transaction, even if the management team had no interest initially.
Regardless of whether the idea was planted or original, once the company decides it’s ready to sell or raise capital, it then pits bankers against each other in a bake-off.
Sometimes if a company has a special relationship with just 1 banker and has never spoken to others, it will skip the pitch and give the business to that banker.
But that’s more common at private and smaller companies where there’s not as much oversight from the Board of Directors – at anything bigger the Board usually requires the management team to solicit competitive offers.
At this point they would contact all the bankers they’ve gotten to know over the years and tell them what they’re planning, send over relevant financial information, and invite them to pitch for the deal.
The number of banks invited depends on the deal type – IPOs have many banks, whereas in M&A deals there’s just 1 or 2 advising the buyer and seller – and whether or not the company wants to stick with the bankers it knows best or go for a broader set.
Who Wins the Deal?
This must come down to whether or not you’ve dotted all the i’s and crossed all the t’s in your pitch book, right? And whether or not you remembered to change the font size on every single page, right?
Nope – most of the time the pitch book itself is irrelevant to winning the deal, even if you pulled 4 all-nighters to create it.
What matters is how much the company likes the senior bankers, what the senior bankers say, and how they say it – and what they say compared to the other bankers pitching for the deal.
Let’s say you go in and claim that the company is worth $500 million and that you can complete the sale process in 6 months. Then another banker goes in and says the company is worth $400 million and that the sale process will take 12 months.
You might assume that you’ll win since your claims are more aggressive and will result in a better price for investors – and sometimes that’s true.
But the CEO and other Board members/executives could also look at your pitch and think that your numbers are unrealistic and that you’re not being honest – especially if everyone else there is predicting lower valuations.
So you need to use a careful blend of salesmanship and pragmatism to win deals.
After the Pitch
There may be a clear “winner,” but more often than not, the company will follow up with multiple banks to see what the fee structures are like and what their recommendations are in more detail.
For smaller companies and deals, the fees make a bigger difference and sometimes a bank will win the deal by promising lower fees or a structure that rewards them for better results (e.g. 0.75% under $500 million and 1.5% for the amount above $500 million).
Most of the time, though, it comes down to all of the above factors and the company considers everything when making a decision.
This is not a rational or logical process – just like selecting which applicants will receive interviews, it’s random and fraught with emotion.
If you think executives are rational just because hundreds of millions or billions of dollars are involved, nothing could be further from the truth – sometimes the more money that’s involved, the less rational the deal (AOL / Time Warner).
Putting everything together, here’s an example of how you, after you become a Managing Director, might meet a CEO, develop the relationship, and then pitch for the deal:
5 years ago you were having a catch-up meeting with a local VC and he mentioned that a tech startup in their portfolio was hot and would change the world of online media.
He gave you an introduction, so you met with the CEO, learned about his vision for the business, and got an idea of the company’s financial performance.
A year later, you caught up with the CEO once again and gave him an update on the capital markets and what IPOs were pricing at. The company was not yet cash flow-positive, but they had killer revenue growth.
The next year (3 years ago), the IPO markets were closed but the CEO wanted to use his stock to acquire smaller competitors – so you ran a buy-side M&A process for him over the course of 6 months. It never went anywhere since they couldn’t find anything good and got distracted by other issues.
Then, 2 years ago, the company finally turned cash flow-positive and started thinking about an IPO, which they told you about during your quarterly meeting with them.
You made your analyst monkey stay awake for 60 hours straight to prepare a 200-page pitch book laying out all the nuances, but then the CEO decided to hold off until the market got better.
Finally, a few weeks ago the CEO contacted you again just before another meeting and said that they are now serious about selling and want to hear your thoughts – so he invited you in to pitch for the deal.
Not only did this process take 5 years, but there’s no guarantee that this planned sell-side M&A deal will even happen – or that the mandate will go to your bank.
Maybe no one will be interested; maybe the CEO will change his mind yet again; or maybe investors will pressure them to go public instead.
And you ran a failed buy-side M&A process for them a few years ago.
This is why investment banking is such a tough business: you could do everything right for 5 years and still lose the deal because your fees are 0.1% too expensive, or because the CEO gets emotional and happens to like an unknown banker more.
Wait, This Sounds Boring!
One time I was explaining this process to a friend who was still in university and he said, “Wow that sounds boring – I’d rather do modeling and analytical work.”
If your IQ is higher than your EQ, it may not sound too appealing to develop relationships like this and constantly pitch for new business.
But as Jonathan Knee points out in The Accidental Investment Banker (highly recommended), all deals start to look the same after a while.
You learn a lot at first and valuing and modeling companies seems exciting when you’re new, but they become routine and boring once you’ve done them 500 times.
We’re more interested in stories and inter-personal drama than we are in staring at Excel all day – so even if the process above doesn’t sound interesting right now, you may change your mind in a few years.
You might assume that you should move to the buy-side if you’re not interested in any of this, but that’s only partially true – in PE and VC you still do a lot of relationship-building, meeting with new companies, and so on.
So if it’s really not your cup of tea, think about hedge funds or trading – where you can make bank without talking to people or leaving your 8 computer screens.
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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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