Showing posts with label Hogwart's School of Witchcraft and Wizardry. Show all posts
Showing posts with label Hogwart's School of Witchcraft and Wizardry. Show all posts

Monday, July 7, 2014

You Go First

A busy analyst is a happy analyst
Don’t shit where you eat.

— Anonymous

Way back in the Dark Ages of Investment Banking, O Dearly Beloved—say in the 1970s or 1980s, before Your Humble Correspondent embedded himself in the front lines of global financial conflict—somebody or other decided in their infinite wisdom that new recruits to my industry out of college should, as a matter of policy, be hired for two-year stints only. After this period expired, they were thanked for their troubles, given a celebratory fruit basket or somesuch, and politely shown the door. A tiny minority of very strong promise were sometimes buttonholed by higher ups, slipped a tenner or two, and persuaded in whispered tones to stay on as regular employees, but virtually everyone else was gently or not so gently ushered out the door. Talented leavers were encouraged to reapply for admission after a stint at a recognized institution of higher networking obfuscation learning where they could bolster their professional credentials and familiarity with the latest corporate buzzwords. Talentless cannon fodder—as revealed ex post via mediocre or worse job performance—were graced with fixed grins and sotto voce imprecations muttered between gritted teeth. Almost everybody left.

The reasons for this odd system may be lost in the mists of time (or your Professionally Nonchalant Bloggist’s lack of interest in substantive historical research, which for all intents and purposes is the same thing), but it has obtained in my line of work for many a waxing and waning moon. As such, investment banks and college graduates—clueless children educated to within an inch of their lives in disciplines useful perhaps 300 years ago and no later—found a symbiotic relationship in which this program served each of their interests and predilections. College students found a well-organized, (then-)prestigious, (then-)well-paying industry with slick recruiting materials willing to take on their confused and ill-directed selves for a limited period of two years, in which the banks promised to provide very good money, an impressive notch on their virgin résumés, and all the Seamless food they could eat, with a free Get Out of Jail card tacked on at the end. In exchange, the investment banks got swarms of smart, eager young beavers willing to learn how to create and maintain 50 page spreadsheets and 100 page presentation books and generally make themselves available 24-7-365 for all manner of scut work while they figured out what they wanted to do with their lives. Lots of directionless college graduates got jobs which paid terrifically well and offered prestige far beyond their deserts, and investment banks got access to a much larger group of intelligent, ambitious youngsters than they deserved. It all worked out pretty well.

Back in these prelapsarian times, when majestic investment bank dinosaurs still trod the Earth, a cozy symbiosis developed between the much smaller private equity industry—small, nimble, clever mammals and clients of the dinosaurs, to boot—and big investment banks. Private equity firms were always looking for a few highly trained, intelligent, and motivated finance geeks to join their organizations at the bottom every year to both support the Schwarzmans, Blacks, and Kravises of the world and eventually succeed them. Naturally, they looked to the giant investment banks as farm teams for their junior recruits, and they cultivated a close relationship with promising young investment bankers they met on live transactions and found through industry gossip. They also pumped their counterparts and salespeople at the banks for information as to who was the best, fastest, and most ambitious among their large Financial Analyst classes in order to target their recruiting appropriately. Senior bankers were happy to cooperate, since 1) it made some of their best, highest paying clients happy, and 2) top junior bankers were likely to leave after their two year stint was up anyway. PE firms were free to recruit these tyro plutocrats and, since their recruiting tended to be focused near the end of the analysts’ two year terms and did not materially interfere with their duties, any minor inconveniences could be comfortably overlooked.

* * *

But now we live in much different times, Most Patient and Understanding of Readers, as many of you may indeed be aware. Banks face life-altering threats from Dodd-Frank lava flows and Volcker Rule asteroids, and the tiny, nimble private equity mammals of yore have evolved into lumbering colossi of hair, tooth, and tusk which are assuming the role of apex herbivores and predators in the global financial ecosystem. Financial Analyst positions at investment banks are nowhere near as numerous as they used to be, and those that still exist no longer carry the socioeconomic prestige or promise of outsize pay they used to. On the other hand, the largest of private equity firms have evolved into very large firms indeed, with a consequently magnified demand for cannon fodder of their own, and they have been joined by legions of small and mid-sized private equity firms with their own need for junior weenies. The tables, so to speak, have decisively turned.

And yet the private equity industry still chooses to recruit its junior personnel from the same place: the most talented among the junior ranks of investment banks. Except they are no longer following the old gentleman’s agreement of letting young bankers mature and learn in situ before they harvest them: they are recruiting them practically before the ink dries on the little buggers’ bank business cards. This, as you might imagine, is beginning to irritate investment banks, who spend a great deal of time and money recruiting, selecting, and training young bankers into useful employees. It is one thing to recruit and train a top Financial Analyst who will give you a solid two years of work and then depart, a friend of the firm, to an important client where he or she might eventually direct more business to you. It is another entirely for your new analysts to start receiving frantic recruiting efforts six months after they start their jobs and sign acceptance letters at new employers 18 months before they are supposed to leave. In addition to distracting them from time-sensitive duties for which we pay them ridiculously high wages and diminishing their incentive to work hard for the rest of their contracted stint (because they have guaranteed jobs waiting at the end), recruiting and hiring by private equity firms can introduce serious potential conflicts.

Notwithstanding their position at the very bottom of the investment banking totem pole—or in fact exactly because of it—Financial Analysts are privy to highly sensitive confidential information about many clients’ businesses and lots of live and potential transactions. This is especially true of those analysts who work in corporate transaction-intensive parts of investment banks like mergers & acquisitions, leveraged finance, and financial sponsor coverage. These are the very analysts which private equity firms are most interested in hiring, since their training, talents, and daily work resembles their own most closely (as opposed to, say, corporate financiers focused on capital raising, capital markets bankers, or sales and trading assistants). For one of these analysts to have divided loyalties, or an open information channel to a private equity firm which has already hired him effective 18 months from now, is a serious potential breach of confidentiality and maybe even a source of direct conflict. Even if one presumes there are no private equity professionals who would be tempted to pressure an investment bank analyst to share confidential deal or client information via friendly persuasion or even a threat of rescinding an outstanding future job offer—a towering assumption of dubious validity, I assure you—knowledge that a junior employee has a signed job offer from a particular client is going to make any investment bank compliance officer extremely uncomfortable. It is also going to cause more relaxed banks serious client management problems if KKR discovers the analyst working on their $10 billion proprietary buyout is going to work for Apollo in ten months.

* * *

And, if we’re being honest here, the suboptimal equilibrium falling out of this vicious prisoner’s dilemma is doing nobody any good. Because too many private equity firms are competing for too few analysts1, they have begun recruiting them earlier and earlier, and they are signing them to offers before they are even halfway done with their two-year apprenticeships. This is a problem for PE firms for two reasons. First, it really isn’t that easy to determine who are the best (most competent and adept) financial analysts after only six months, because such competence is developed not only through training but also through sheer bloody volume of experience. Private equity firms like to think they have the interviewing skills to figure this out in advance of actual proof, but in this, as in so many other things, the PE firms are massively overestimating their own knowledge and skill. The only thing they can determine with certainty this early in a novice investment banker’s career is whether he or she is a hardcore finance junkie (see footnote 1, below), but these do not always turn out to be the best analysts.

Second, and more importantly, if a bank discovers their first year analyst has an offer of employment 12 to 18 months hence at a private equity firm, they may do one or more things to seriously diminish the value of said analyst to his future employer. Harsher banks may simply fire such analysts, on the not-too-ridiculous theory that it’s just too much trouble to manage an employee with potentially serious conflicts of interest (q.v. supra) whose motivation to work insanely hard and try to become the best analyst she can be is seriously undermined by having a guaranteed exit to what she sees as a better job in the future. Other banks, suspicious about such shenanigans, may ask employees outright if they have accepted offers from other firms. If the analyst lies and the bank finds out (and Wall Street and the private equity industry are very small worlds indeed), the bank may fire said analyst for cause, thereby simultaneously cutting short the apprenticeship her future employer was counting on to train her appropriately as well as tarnishing her employment history.

Still other banks, unwilling to can employees they have sunk serious time and money into training and developing to be investment bank analysts, may decide out of reasonable caution to reassign such juniors to areas where their future employment status will not create the reality or appearance of potential conflicts. But this means these analysts will likely be rotated out of areas such as M&A, leveraged finance, or sponsor coverage where they would have otherwise received the intensive hands-on experience their future employers were counting on to make them valuable hires. Even less draconian measures along such lines, such as reassigning compromised analysts to only work with corporate clients or relocating them to overseas posts where geography can provide some measure of conflict insulation, will have the same effect of rendering these prize recruits that much less experienced and valuable to their future private equity overlords.

And in all such outcomes, the entity screwed the hardest is, of course, the financial analyst him- or herself. If he or she dodges the bullet of summary firing for cause (or not for cause), they may still limp along in another position within the bank they have less interest in, have their training and experience gathering significantly curtailed or redirected, and/or work under a cloud of suspicion as to their motivation and team spirit (with consequent negative implications for performance reviews and pay) for the remainder of their employment in banking. Plus, it would be the rare and lucky analyst indeed who suffered any one or more of these fates who did not see his magical “guaranteed” offer of employment at Private Equity Megabucks, LLC evaporate like a fetid mist over the Bayonne Marshes once PEM, LLC finds out. Trust me here: private equity firms are not charitable organizations. They don’t give a shit about you.

* * *

The solution to this dilemma, of course, is simple. Private equity firms have become large and rich enough that they should do their own damn recruiting at colleges to hire junior personnel, rather than relying on investment banks to provide a pre-screened, pre-qualified employee pool to poach from. Given their focus on hiring the elite of the elite and hardcore finance junkies, this should not be too much of a burden, since PE firms almost uniformly insist on hiring recruits from the Wharton School and maybe five or six other top-name universities anyway. It’s not like they’re going to have to visit 100 colleges around the country. Of course, they would have to train these new graduates themselves, which will involve time, money, and effort they are normally loath to expend. But the time has come for private equity firms to realize they are too big individually and in aggregate to slipstream off the shoulders of investment banks anymore. The parasite-host burden has become too large.

The other solution, of course, is to chill the fuck out and go back to the old system of waiting to recruit IB analysts later. This would be better for private equity, better for investment banks, and better for junior professionals. It is a difficult collective action problem, which would require discipline on the part of PE firms and potential recruits, as well as support from investment banks, but it is not impossible to foresee.2

Private equity takes extreme pride in being disciplined investors, and they broadcast this message loud and long to anyone who will listen. The time has come for them to demonstrate they can be disciplined recruiters and employers, too.

And to stop taking dumps in the community watering hole.

Related reading:
William Alden, A Mad Scramble for Young Bankers: Wall Street Banks and Private Equity Firms Compete for Young Talent (The New York Times, July 5, 2014)
Curriculum Vitae (March 10, 2013)

1 Private equity firms like to style themselves as even more selective than investment banks. At least in the past, when their relative numbers could support it, they preferred to hire only the top five or ten percent of IB analysts (as so ranked and paid by their bank employers) into their firms. The notion is that they are the elite of the elite, and they want 24-year-olds who can program 50-page LBO models in their sleep using Visicalc and chewing gum, as well as pure hardcore finance junkies whose every waking dream since kindergarten has been to have a bigger 60th birthday party than Steve Schwarzman. These are the kids who tape stock tables from The Wall Street Journal and glossy pictures of Warren Buffett on their bedroom walls in high school, enroll in the Wharton School as double finance and econ majors, and who viciously haze any coworker who cannot navigate a spreadsheet without a mouse. These are the kids who have summer jobs in college teaching Training the Street classes in basic accounting and financial modeling to liberal arts majors who want to apply to Goldman Sachs too. They have always wanted to be private equity professionals. In the past, they only applied to investment banks out of college because that was the only way to get into PE.
2 Surprisingly enough, the junior recruits might be the best positioned of anyone to enforce such a return to sanity. If they were courageous enough to forgo immediate recruiting by private equity as soon as they get their sea legs, they could build their skills and experience at their bank employers for the full two years of their employment. I find it hard to believe such candidates, battle tested and thoroughly trained, would not find an eager audience of potential employers among the best private equity firms once they’re ready. They are certainly superior candidates to wet-behind-the-ears tyros six months out of college. But this, of course, requires wisdom and courage from 22-year-olds in a fevered and desperate job environment. That may be too much to expect from the poor lambs.

© 2014 The Epicurean Dealmaker. All rights reserved.

Thursday, April 10, 2014

The School of Hard Knocks

My GPA is Fuhgeddaboutit
Power Figure, Kongo Peoples, 19th C.
I am no student (We’re going down to meet
Feel those vibrations) Of ancient culture
(I know a neat excavation)
Before I talk
I should read a book
But there’s one thing
That I do know:
There’s a lot of ruin
In Mesopotamia

— The B-52s, “Mesopotamia

Megan McArdle penned an impassioned plea last week for the (presumably elite, corporate, Bloomberg-View-reading)1 employers of America to consider hiring more ex-slackers. Notwithstanding her acknowledged bias as a self-described ex-slacker herself, Ms McArdle argued this made sense for two reasons: first, young slackers do not necessarily stay slackers as they age, and second, hiring the alternative—highly professionalized, directed, ambitious careerists—tends to result in fragile corporate monocultures which are subject to their own risks and flaws, including social and intellectual conformity and groupthink.

I am less persuaded by Ms McArdle’s first rationale. In my experience there are all kinds of slackers, including potentially promising ones who dicked around in their youth because they were restless and bored by the cookie cutter path of adolescence and completely irredeemable ones who dicked around because they were lazy bastards who preferred (and will always prefer) to get high on tasty weed rather than do their homework or take out the garbage. I guess the operative screen is ex-slacker, since someone who actually gets her shit together and tries to make something of herself does deserve a real opportunity. Like Ms McArdle, though, ambitious ex-slackers have a lot of proving to do.

Her second rationale resonates strongly with me, however. Over the course of my more than two-decade long career in investment banking, I have read the job applications and interviewed hundreds of young candidates for entry level Financial Analyst and Associate positions at a number of firms of different size, prestige, and culture. Over that same period, I have seen an increasing convergence in the kinds and qualifications of these candidates: predictably good or stellar grades in unobjectionable mainstream majors like finance, business, or economics, predictably hyperactive extracurricular activities centered around “leadership” building opportunities, and predictably careerist charitable and community service activities which only Scrooge could object to. My typical reaction to such candidates is ably captured by David Brooks:
When you read these résumés, you have two thoughts. First, this applicant is awesome. Second, there’s something completely flavorless here. This person has followed the cookie-cutter formula for what it means to be successful and you actually have no clue what the person is really like except for a high talent for social conformity. Either they have no desire to chart out an original life course or lack the courage to do so.
Now normally this is not these children’s fault. It is what they have been told to desire and groomed to accomplish their entire lives. But, with all due respect to Megan McArdle’s Harvard friends with 4.0 GPAs, my God these people are boring.

Most of them, if they ever had a personality or original thought in their head in the first place, have hammered it down so deep into their subconscious they couldn’t summon it on pain of death. Their résumés, their bearing, and their polished interview patter render them about as distinguishable and interesting to talk to as Brooks Brothers mannequins. Nothing in their conversation or revealed background indicates any appetite for adventure, risk, or enlightenment. Nothing they can relate indicates they have tried something they didn’t know they could succeed at, risked failure for a good reason (or any reason at all), or simply gave themselves up to powers greater than themselves—love, fate, chance—just because. They haven’t lived at all. They’ve followed a career path.

I call them carbon sinks.2

* * *

Now the more charitable among you (as well as the helicopter parents who spawned these pathetic simulacra of humanity) will object I am being too harsh on these special snowflakes. You will remind me they are young, and hence pathetically stupid and naïve about the world and their true opportunities in it. Give them time and space, you plead, and these button-downed zombies will blossom into fulfilled and meaningful personalities. You will scold me for dismissing naturally interesting and unusual individuals because they are too wise (or afraid) to run up their freak flags in an interview with a curmudgeonly old white man at a potential future employer. You will complain that I only seek for such adventurers and renegades because I miss my own long-lost adventuring, and I want to relive my halcyon youth in these eager tyros’ stories for the space of a half an hour.

And you would be right. A tiny, tiny bit. But not much. Because I am experienced and clever enough to know how to winkle most such secrets out of the prepackaged dross of most college and business school graduates, if they exist. But they usually don’t. The polished husk you see is usually all there is. And my youthful gallivanting is not something I need or want to recapture in the glazed eyes of some nervous, dissembling twenty-two year old.

No, I look for evidence of intellectual independence, untrammeled curiosity, and adventuresomeness because these are really, really valuable traits in a professional investment banker. A young person who has deviated from the beaten path, who has taken risks, who has ventured to explore something unknown is far more likely to develop the mental flexibility, toughness, and adaptability that will make him or her a valuable counselor and advisor to his or her clients. Sure, these traits are largely useless in the beginning of any investment banker’s career, when they are and must be suppressed in order to satisfy the pressing demands of intellectual drudgery and unimaginative detail work that investment banks expect of their indentured chattel. But they re-emerge later on, as a young banker increasingly grows into the role of a pure salesman who must earn the respect and trust of his or her clients, colleagues, and peers.

And when you do this, a youth spent stretching the envelope and taking risks comes back to pay dividends all out of proportion to its actual extent. For one thing, you have a lumber room of stories which you can share with your clients and colleagues over dinner and drinks that will make them laugh and look at you admiringly. You will not be boring. For another, you are likely to genuinely appreciate these very clients’ and colleagues’ own youthful peccadilloes, which will only endear you to them as a non-judgmental, non-asshole, which is a sadly rare commodity in my business. Most importantly, taking risks and exploring the unknown—whatever form that may take—will likely increase your store of that deeply unfashionable and socially awkward characteristic: wisdom. As Ms McArdle herself avers,

When the prodigal sons return to the fold, they often bring with them valuable information about the outside world.
Wisdom is nothing to sneer at in a professional advisor, much less in a normal human being.

* * *

So what does this mean for the average ambitious youngster reading these words? Well, it means I heartily recommend taking a flyer or two, mixing it up, and actually trying to explore who you are and what you want out of life other than a prestigious, well-paying job at Stereotype Brothers, LLC. For one thing, you may find out to your chagrin after 22 years of prepping for Goldman Sachs that you really want to be a professional chef. Or a skydiver. Or a paleobotanist. Your whole life is ahead of you. I’ve asked this before: why should you put all your youthful energy, curiosity, and enthusiasm into a basket you’re not sure you want to carry?

Plenty of college students nowadays—perhaps too many, in this old man’s opinion—spend all their time and energy in college acquiring what they believe to be marketable skills, without considering for a minute whether the employment to which they aspire is right for them, will exist in a meaningful form in the future, or even will hold their interest for more than a few years.

But don’t get me wrong, either. Taking risks, avoiding the beaten path, and cultivating adventure is not an easy road. It’s certainly no guarantee of success.3 But is conventional success all you want out of life? Please say no.

It is the brave ones who are not afraid to expose themselves to risk, earn scars, and take hard knocks who make the most interesting humans. And even if you stick to the halls of commerce, I bet you’ll find a lot more risk takers and nonconformists among the ranks of the truly successful than Harvard 4.0s.

Guess who they’d rather talk to over a beer at 3:00 am.

Related reading:
The Standard Model (February 18, 2012)
No Country for Young Children (October 21, 2012)
Curriculum Vitae (March 10, 2013)

1 As opposed, say, to the vast unwashed non-elite, non-Bloomberg-View-reading firms who have to compete for their employees in less exalted realms.
2 As in somewhere a carbon atom goes to wait for 30 to 60 years before it can do something interesting, like get sucked into a supernova. Or become a charcoal briquet.
3 For one thing, if you do decide you want to get into investment banking, you’re going to have to run a gauntlet of dozens of junior bankers who are just as blinkered and one-dimensional as the straw men I have been eviscerating in this post. And very few of them, by definition, will be able to appreciate your non-conformity to the career model and professional values they have staked their entire young lives upon. I can’t tell you how many polite arguments I’ve had in group recruiting meetings with tyros who only want to hire (really smart, really accomplished) cardboard cutouts like themselves. And I don’t always win. Caveat interviewee.

© 2014 The Epicurean Dealmaker. All rights reserved.

Tuesday, January 14, 2014

A Fine Disregard for the Rules

Can I call you back? I've just been joined by a law-enforcement official.
I’ve been trying to figure out how to share with you, O Dearly Beloved, just why it is that the current snowballing trend of reducing working hours for junior bankers in my industry1 is so wrongheaded. Clearly, I am swimming against the tide here, as now Credit Suisse and Bank of America have joined the political correctness police at Goldman Sachs and J.P. Morgan to dissuade our nubile young apprentices from their traditional practice of working hours that would make a Southern slave overseer of the 1860s blush.

The unwashed commentariat continues to flog the canard that investment banks are doing this so they can compete against the innopreneurial juggernauts of Silicon Valley for all the special young snowflakes of Dartmouth, Yale, and Oxbridge. Perhaps there is a contingent among the benighted paper pushers of investment bank human resources departments who believe this too, but I have attacked this superficial notion thoroughly and, in my opinion, effectively in the past. Suffice it to say here that 1) since Wall Street is shrinking we don’t need as many junior resources as before, 2) the number of college graduates who simultaneously aspire to be J. Pierpont Morgan and Steve Jobs (or even Bernie Madoff and Mark Zuckerberg) is now and always has been nil, and 3) if having an in-house masseuse, pool table, and artisanal toast barista is important to your career satisfaction, you were never going to last longer than 15 minutes on Wall Street anyway.

Good riddance to all such rubbish, say I. And I am not alone. Like many industries in secular eclipse, we will fall back on our traditional recruiting pool of hardcore finance junkies who find an elegant DCF model and a sharp suit far more exciting and satisfying than virtual farm animals and flip flops. À chacun son goût, dontcha know.

* * *

There is another angle which a few more perceptive observers have been pursuing on this topic, however, that deserves to be addressed. This is the contention that the fabled 80, 90, and even 100+ hour workweeks and almost constant weekend work which junior bankers have been known to suffer (and competitively crow about to all who would listen) do not mean said tyros are working hard that entire time. Rather, they are the result of massively inefficient work processes. This observation is absolutely correct.

Rare is the Analyst or Associate in Corporate Finance or M&A who rolls into the office before 9:30 or 10:00 am on a workday,2 and rarer indeed is the one who actually starts to do anything really productive prior to the time senior bankers begin streaming out of the office at 7:00 pm. So well known is this phenomenon that even ex-lawyer-cum-derivatives-structurers from the capital markets side of obscure banks can write authoritatively about it. This is not, pace certain sociologically-oriented observers,3 due solely to the fact that senior bankers want to haze juniors like they were hazed in their youth, or that it is a conscious program of brainwashing designed to leach out whatever shreds of self-preservation and flimsy moral scruples said youngsters might have left after four years of elite higher education so they can promote our deviously immoral plots against all that is holy and good in society for senior bankers’ personal gain. Not solely, anyway.

No, this massively inefficient workflow arises organically out of the nature of the work we do. Typically, a junior banker will roll into work relatively late because she was at work until midnight, one, or two o’clock the previous night finishing the corrections or first draft of a presentation or model which a senior banker dumped on her desk before he went home and demanded be put on his chair overnight for when he arrived in the morning. It will often take several hours, if not all day, for the senior banker to review the changes and give them back (for why, see infra), so the junior banker will fill her morning with odds and ends of other projects or deals she is working on plus the inevitable conference calls with clients and internal meetings on live and prospective deals. Afternoons are more of the same, with the addition of new assignments and working meetings on current projects with immediate superiors like Associates and Vice Presidents, who will always have their own corrections, suggestions, and annoyances to impart to the beleaguered young banker, plus informal conferences and bullshitting sessions with her peers in the bullpen. Add to this workflow pattern the complication that most junior bankers are working on multiple live and prospective deals or projects at the same time, all of which are in various stages of completion, activity, and panic level, and you begin to see that a junior banker’s workday is one of constant juggling and interruption.

This pattern applies in corporate finance and M&A generally, as bankers at every level have their mornings consumed by reacting to overnight developments in the news and their own ongoing projects and their afternoons and early evenings consumed by internal and external meetings and conference calls which are designed to push said projects further toward completion. Senior bankers like me, who are responsible for originating and closing all the deal revenues which pay for this goat rodeo, come in to a stack of presentations and models to review, a stack of emails and phone calls to and from clients and colleagues to reply to or initiate, and a calendar chockablock with conference calls and meetings with deal teams, colleagues from other departments (who actually do much of the work we get paid for), and, of course, the all-important client. And this is just on non-travel days, when we actually have a full day in the office to “catch up” on this shit. Rare is even the most well-intentioned senior banker who is able to carve out 20 or 30 minutes to review the presentation a junior banker turned overnight for him before his clients and capital markets colleagues leave work at the end of the day and the telephones stop ringing. Many a time have I rolled into the office at 7:30 am fully intending to turn my comments on an urgent pitch waiting for me on my chair by the time the Analyst or Associate comes in at 10, only to get to it for the very first time at 7:00 pm. This is commonplace.

Similarly, senior bankers, if they are lucky and doing their job, will come up with new assignments, projects, and prospective deals during the course of their phone calls and meetings each day. Given the relentless interruptions senior bankers are subject to themselves (see supra), it is the extremely rare (read nonexistent) Managing Director who calls up the poor slob Vice President tasked with distributing assignments to Analysts and Associates (known to IBD management as “The Staffer” and junior bankers as “That Asshole”) to request staffing on a new project before he runs out the door at 7:37 pm to catch the booze car back to Darien. This is when the put upon Staffer tries to snare an elusive Associate or Analyst before she sees him coming and stick her with a new assignment. (The role of Staffer is the poisoned chalice of Vice President-hood in my business.)

And given that my business, as I have attempted on many an occasion to pound gently but relentlessly into your Well-Meaning and Charming Little Heads, is a client service business, the temptation, thrust, and almost universal practice for anything we do is to do it as soon as possible. After all, if we don’t spread the S&P 500 into Swedish kroner for the client by tomorrow morning, those fuckers at Morgan Stanley certainly will. That means overnight, and that means little Suzy and Billy are going to forgo getting laid for the sixth Friday in a row so their Managing Director can deliver an LBO analysis to the Corporate Treasurer of Google on Saturday which he will not read until Tuesday at the earliest, if he even remembers to take it home. This is what is known colloquially among the denizens of investment banking bullpens as “Living the Dream.”

* * *

So, to a perceptive observer, the life of a junior investment banker in corporate finance or M&A looks pretty lopsided:4 lots of interruptions, busy work, and futzing around during normal working hours, and hard, sustained project work overnight and during weekends. It is certainly different from that of their peers in capital markets, who typically work very intensely from 7 am to 7 pm Monday to Friday, then go home and relax or party with friends and family on nights and weekends. From the perspective of a capital markets banker (I was one, briefly, many moons ago), it seems like corp fin and M&A bankers dick around at very low intensity most of the day. They rarely notice the latter only turn on the afterburners after they and pikers like me go home.

And, speaking as a former junior banker myself, I must say working overnight and on weekends, while often a pain in the ass, could actually be pretty pleasant. On weekends in particular, you could roll in after noon, dressed in jeans and a t-shirt if you wanted, and put in three to twelve hours of solid, uninterrupted work on the presentations and models you had in your inbox before you left to down some beers or equivalent with your non-working pals. Being able to focus intently on a difficult model or a tricky presentation without some asshole Managing Director or Vice President breathing down your neck or regaling you with some dipshit story about the strippers he had in his Hamptons hot tub last weekend could be pretty sweet. Given that you’re going to grind through the work anyway, it’s nice to be able to do it without constant interruption.

Of course, there is another very real, very important reason lots of work gets done in investment banks during weekends. It is the obvious, best time to consummate mergers and acquisitions, when public markets are closed and the last minute scrambling on deals can’t kick up disruptive rumors or market movements.
That, plus the complications introduced by the frequent occurrence of clients having the audacity to conduct their deal business in different time zones:
Which is why, at the end of the day, Your Contumacious Correspondent thinks the no- or limited weekend policies Goldman, J.P. Morgan, Bank of America, and Credit Suisse are foisting upon their minions are so stupid. They certainly won’t stop clients making insane demands (or, what is the same thing, Managing Directors agreeing to or even suggesting such demands in order to curry favor). They certainly won’t change the ineluctable dynamic that meetings and phone calls during the day not only prevent much productive work from being done but also create new work to be delivered tomorrow. They absolutely won’t make Managing Directors refuse to take a client phone call or host a meeting to close a deal just so they can give a new assignment to some 23-year-old before 5 pm. All they will do, if everybody observes them to the letter, will be to push work that could be otherwise done productively and relatively painlessly over the weekend into the lobster shift on weeknights. That sounds like a pretty shitty tradeoff for twenty somethings in my book.

* * *

Of course, nobody who has any drive, ambition, or cleverness is going to pay the least fucking attention to these nonsense rules. The Analysts and Associates who find ways around them, and who deliver high quality work when it is requested and needed—not when some never-been-a-banker HR weenie says it should be—will be noted, cultivated, and rewarded disproportionately by their superiors. The clock watchers and slackers who religiously follow the weekend work prohibitions will be isolated, paid badly, and given lukewarm recommendations. The only possible good outcome they will have is being able to lie about being one of the rule-breaking, 100+-hour-working Wall Street badasses to impress their Zynga and Snapchat interviewers after they get constructively fired from the Street. Given how justice seems to operate in the world, such clowns will probably end up internet multimillionaires anyway.

Nobody ever said Wall Street was fair.

Related reading:
The Invention of Leisure (November 12, 2013)
In the Nation’s Service (December 29, 2011)
Come Fly With Me (February 12, 2011)

1 As usual, I speak of junior bankers on my side of the house—corporate finance and M&A—who actually do work insane hours on a regular basis. While the novice denizens of the sales and trading side of the house also work hard, although differently (see supra), none of them regularly clock 80, 90, or even 100+ hour weeks in pursuit of the almighty shekel. The sales and trading floor is almost always emptier than a western movie set at high noon and quieter than a tomb after 7:00 pm on weekdays and anytime on the weekends. If anyone other than skeleton staff passing trading books from their time zone to traders in another is actually at their desk during those times, you can damn well bet Risk Management and Compliance would like to know why.
2 I have picked up and made my own a phrase which a senior banker once offered me in centuries past: “You could fire a cannon through the bullpen before 9:30 am on a weekday without fear of hitting anybody.” Interestingly, senior bankers like him (and now me) often try to get into the office much earlier on non-travel days—like 7:30 or 8 o’clock—because we can get more work and planning done before our clients start calling and our assistants start pestering us for three-week-old expense reports.
3 The argument that junior bankers’ hours have no functional utility but rather are simply of a kind with the widespread hazing rituals many social organizations impose on their initiates is spurious itself for three major reasons. First, it ignores the why of the tradition, which I have laid out at length above and elsewhere, in favor of the how. This simply begs the question. Second, as at least one commenter to the linked piece notes, if hazing investment banking juniors is supposed to make them unthinkingly loyal to the bank and industry which does it, it is remarkably ineffective. Junior bankers do wear their trials, real and imagined, as a badge of pride, but it conveys no loyalty to the bastards or firm who did it to them. It is an undeniable fact that bankers of any seniority will jump to another firm at the drop of a hat (or large signing bonus). If anything, the hazing of junior Analysts and Associates weakens and destroys the reflexive loyalty and gratitude to their employer most of the innocent young lambs bring to their jobs when they are first let in the magic door. Lastly, the hazing we do does little to degrade the moral compass of our young charges. At most it just makes them more cynical about large bureaucratic organizations and disillusioned about the charms of my profession. Rare is the first or second year Analyst or Associate who has to make a decision with the least moral content whatsoever; they just have to decide at 3:00 am whether to do the 30 page Excel model or the 60 page Powerpoint presentation first.
4 Of course, you can see a couple of things worth noting if you have been paying attention. First, the 80, 90, or 100+ hour workweeks are never planned. They arise organically out of the junior banker’s project load, normally because two or more of her assignments go live and active at the same time. There is nothing to do but gut it out when that happens, and that means working 16 or more hours a day and going home at 6:00 am to shower, change, and return to the office. Second, these stupid work limitation rules are really only coming into effect now because most corporate finance and M&A bankers don’t have enough productive, money-making work to do in the first place. As soon as the market turns, you will see these rules die an ignoble and unremarked death.

© 2014 The Epicurean Dealmaker. All rights reserved.

Tuesday, November 12, 2013

The Invention of Leisure

Yes, that's right, children: It's all downhill after sophomore year.
“Get a job.”

Famous chorus from a popular song

O Dearest and Most Beloved of All Indiscriminate Internet Content Consumers (that’s you), I fear Your Humble and Most Retiring of All Econoblogosophists (that’s me) has some terrible news to impart:

Goldman Sachs has finally and irrevocably jumped the shark.

And no, I reluctantly interrupt your quiet enjoyment of reality television this sad evening not because the favorite whipping boy of every published journalist and his or her small dog has decided to stop ripping the faces off muppets, repackaging toxic waste for sale to blind widows and orphans on life support, or kicking German Landesbanken in the testicles for the sheer joy of listening to them shriek in agony. No, in each of these respects I believe the Ur-Squid of the Western Capitalist World is still now as it ever was: unrestrained, unrepentant, and not just a little bit naughty.

No, whereof I speak (although Lloyd would rather I were silent) is the horrible, earth-shattering, mind-boggling reality that Goldman Sachs—evil poster cephalopod of tendentious, horse-semen-throwing pseudo-Marxist demagogues pontificating from the decaying soap boxes of musico-cultural mouthpieces long past their prime, relevance, and peak circulation levels1—has apparently decided to treat its junior professional employees like human beings.

I know, I know. I will pause here a moment to let you collect your dentures from the floor.

* * *

The sad and shocking truth is that Goldman Sachs has apparently decided to require its cannon fodder (excuse me) valued junior professionals2 to do something so shocking, so transgressive to the norms of civilized society in the concrete canyons of Wall Street and the City of London that I am loath to describe it here without due warning: take Friday nights and Saturdays off. There is other nonsense associated with this new policy, which admits of few or no exceptions, like uninterrupted week-long vacations for Analysts and Associates and a prohibition against gaming artificial weekend idleness by telecommuting via Blackberry, smartphone, or laptop, but I will not sport with your intelligence by elaborating upon it. The material point is these clowns seem hell-bent upon preventing their junior investment bankers from engaging in one of the few, hallowed activities which has differentiated them from their slacker cousins and co-graduates of elite universities who have traditionally enjoyed their weekends fresh out of school by trying not to contract virulent STDs or end up on a slab in the county morgue deceased of alcohol poisoning. Namely, work.3

I can only say: Lloyd. Gary. WTF?

There has been some attempt from certain quarters of the blogosphere to understand the rationale behind this ludicrous pandering to all that is unholy in Human Resources political correctness, and the consensus seems to be that Goldman is taking this ill-advised step reluctantly, in order to compete for its fresh meat valued junior resources with other, currently more glamorous employers like social media companies and other purveyors of popular masturbatory aids. As part and parcel of this facile narrative there is copious pointing toward the alleged demand for and attraction to the “best and brightest” of our youth by said employers. Since Goldman Sachs is purportedly in direct competition with such archetypes of socioeconomic desirability as Google, Facebook, and Twitter for the most intelligent, ambitious, and driven of the flower of our culture’s young people, of course (the argument goes) they must relax the traditional salt mine labor characteristics of entry level investment banking jobs in favor of “work-life balance” and uninterrupted cocaine benders on Friday and Saturday nights.

But this is stupid on many levels.

* * *

For one, as I have stated unequivocally before, investment banking neither seeks out nor requires the allegedly “best and brightest”—whoever the fuck they are supposed to be—for its employees. All we seek are aggressive, ambitious, smart enough young kids to process our ridiculous pitch books, update our standardized models, and generally take our shit while we senior bankers do whatever is necessary to bring in enough revenues to ensure our continued employment and the consequent support of our dependent wives, children, mistresses, and bartenders. For another, the majority of youngsters who are attracted to investment banking are, contrary to the general prejudice of investment banking critics everywhere, surprisingly risk averse and non-entrepreneurial in nature. The tender young shoot who aspires to Lloyd Blankfein’s beard and pay package is almost never the same sort of soul who wishes he or she were staging a Lord of the Rings-themed wedding in the Pacific Northwest woods on the back of technology company stock options. They hold completely different life ambitions. This can be seen by the perhaps surprising absence of former investment bankers among the massively rich and successful entrepreneurs of the world.4

Finally, the implicit coddling and tender concern for the delicate sensibilities of young investment bankers’ boy- and girlfriends which are encoded in Goldman’s new policy are completely and irrevocably at odds with the core premise of my industry, which is uncompromising customer service. The entire fucking point of working 24 hours a day, for days on end, and canceling weeknight dates with Kate Upton, Las Vegas bachelor parties with George Clooney and Brad Pitt, and Christmas holidays with the Pope of all Christendom at the last possible minute is that the entire investment bank works at the pleasure and whim of clients who pay us a small fortune to do so. That is why successful senior bankers never tell the client no. That is why we agree to impossible deadlines for ridiculous requests at the last minute. Why we therefore ruin our junior bankers’ lives with all-night and all-weekend work on a regular basis. Because that is the fucking job.

So telling some pissant college graduate or wet-behind-the-ears MBA she can futz off and take in a Broadway show, art gallery opening, or all-night drinking session in the East Village or West End from Friday night through Sunday morning does that person absolutely no good whatsoever. Because it is telling her, incorrectly, that she should expect clients and bosses to respect the life-work boundaries of normal human beings in her life too. But none of these ever will, and if she wants and expects to make a success of herself in my industry, she better reconcile herself to that fact as soon as fucking possible.

* * *

I am old enough, O Dearly Beloved, to remember the last time big investment banks tried to pander to junior professionals, during the first dot com boom of the late 1990s. Then we tried fruit baskets, casual Fridays every day, and in-house concierges to pick up and deliver dry cleaning, Broadway tickets, and other bullshit in a desperate and ultimately fruitless attempt to prevent our most ambitious young Turks from joining such guaranteed future world beaters as Webvan or None of it worked, since the true entrepreneurs (or reckless idiots) among our ranks lit out for the coast anyway, and the risk-averse remnants who stayed behind got utterly ruined by our coddling. For believe you me, when the dot com boom imploded, the work-life balance perks and privileges disappeared on Wall Street faster than you can say “Bernie Ebbers.” And the poor young knuckleheads who had embraced the kinder, gentler Wall Street as their birthright could not adjust to the harsh light of workaday reality. It is no exaggeration to say an entire generation of potential investment bankers was ruined by such nonsense.

But that is the nature of large scale corporate investment banking nowadays. Human Resources weasels rule the roost in times of weakened revenue generation and secular decline, and the Executive Committee is more than happy to throw a sop to the political correctness police who claim such nonsense is the only way Goldman Sachs will ever hire another person from Princeton University or Harvard Business School ever again. It doesn’t really cost anything, and it is an easy way to separate the oh-I’m-only-here-for-the-resume-building chaff from the yes-I-really-want-to-be-an-investment-banker wheat.

I’d suggest the junior bankers of Goldman Sachs and elsewhere keep that in mind as they adjust to this brave new world of investment banking with a human face. For in my industry, it is wise to remember that it is always the human beings who are taken out behind the woodshed and shot first.

Related reading:
Molon Labe (September 1, 2008)
If the Phone Don’t Ring, You’ll Know It’s Me (October 1, 2011)
In the Nation’s Service (December 29, 2011)

1 Yeah, he’s a dick. A talented dick, but a dick nonetheless.
2By which corporate bureaucratese is meant the wet-behind-the-ears tyros who join investment banks straight out of college (known, grandiloquently, as “Financial Analysts”) or business school (known, similarly, as “Associates”) to provide the blood, lymphatic fluid, and gristle which lubricate the grindstones of a large, multinational investment bank such as Goldman Sachs. Note that the moniker “professionals” is applied only to those naïfs who join an investment bank with some pretense or ambition of making widow and orphan cheating their long-term career, rather than the far more numerous, better-treated, and far less dispensable folks known as “support staff” who actually make the world go around.
3 I speak throughout, by the way, as is my wont, of the junior professionals who work in the corporate finance and M&A arms of investment banks, not the knuckle-dragging denizens of the sales and trading floors. For only the former tend to be on call at the whim of the clients of their investment bank 24/7, whereas the latter knock off at reasonable hours on Friday evenings and only return, bleary eyed and hungover, early Monday morning, to devour onion cheeseburgers and rip off hapless portfolio managers of Landesbanken. Perhaps it is revealing that Lloyd Blankfein and Gary Cohn come from the sales and trading side of Goldman Sachs and hence have little understanding, respect, or appreciation for the traditional work hours of their corporate finance colleagues which they have so unwisely attempted to curtail.
4 Counterexamples, like Mike Bloomberg and Jeff Bezos, prove my point. They worked at investment banks, but they were not investment bankers. They were technology geeks. Staffers. Q.E.D.

© 2013 The Epicurean Dealmaker. All rights reserved.

Saturday, August 31, 2013

To Whom It May Concern

That’s you, and you, and you. And me.
“There are two kinds of people who are staying on this beach: those who are dead and those who are going to die. Now let’s get the hell out of here.”

Col. George A. Taylor

“Sarge, do you think there’s a bullet out there with your name on it?”
“No, Private, but I worry a helluva lot about the bullets with ‘To Whom It May Concern’ written on ’em.”

— Possibly apocryphal

If any big investment bank was foolish enough to hand me control of its new recruit training program, O Dearly Beloved, I think I’d open the “Managing Your Career” portion of the schedule with a screening of the first 27 minutes of Saving Private Ryan. This is the famous extended opening scene depicting the assault on Omaha Beach on the first day of the Normandy invasion in World War II. The scene is so brutal and realistic many D-Day and Vietnam War combat veterans got up and walked out of theaters rather than finish watching it.

Now, notwithstanding the opinion some of you scamps may have of my character, this is not because I’m a sadistic control freak who enjoys pulling power plays on a bunch of dewey-eyed young lads and lasses.1 Nor is it because I want to equate the challenging but relatively cosseted work lives of a bunch of aspiring members of the socioeconomic elite with the life and death business of flinging young mens’ bodies against bullets, bombs, and shredding metal in pursuit of killing other young men.

No, it is because I think it would behoove most of these eager tyros to understand just what kind of forces are arrayed against them as they attempt to make their way in my business. There is a mythos in investment banking, consciously cultivated by investment banks and believed in no more fervently than by its recent recruits, that my business is a purely meritocratic one. It is how we attract so many of the “best and brightest” to the industry in the first place. It is the mantra we drum into their heads in every recruiting interview, performance review, and compensation discussion: Be smart, aggressive, hardworking, and a team player, and you will succeed beyond the dreams of avarice.

But stated this way, this is bullshit. These traits may arguably2 be necessary, but they sure as hell aren’t sufficient.

* * *

Luck—good, bad, indifferent—plays a huge role in anyone’s success in my business. So much of what affects what investment bankers do is beyond our ability to control: the state of the markets, the path of the economy, the success or failure of our clients’ firms compared to their competitors, changes in the regulatory environment, the hiring or firing of personal friends or enemies in decision making roles at clients and potential clients. These are just a few of the boons or impediments which can deliver success far beyond our deserts, or scuttle years worth of unpaid work and preparation in a single afternoon. And this is just business as usual. Forget huge secular tail- or headwinds like the Great Moderation and the Housing Bubble or the Panic of 2008 and the Great Regulatory Unwind we are living through today.3

In both cases, the good and the bad, most of what happens to individual investment bankers can be boiled down to being in the right (or wrong) place at the right (or wrong) time. Over a career spanning more than 20 years, I have seen good and bad bankers alike buoyed far above their proper station by sheer blind good luck or crushed and harried into early retirement by its opposite. There is no sense to it that I can see. It is true that a finely tuned political sense can blunt the bad and accentuate the good, but this skill evolves into one of those necessary traits an investment banker needs as he or she climbs the ladder. It is not sufficient either.

You can see both the naïve belief in meritocracy by one of our members and the gradual realization that perhaps all was not as advertised in paired interviews of the same banker, conducted two months apart, on Joris Luyendijk’s banking blog at The Guardian, here and here. The smug, eager triumphalism of the first interview gives way to resignation and a dawning understanding in the second that his fate was never fully in his own hands. He volunteers a quote which mirrors my metaphor above:

Looking back I may have fallen victim to the self-serving idea that we control our fate; as long as you’re good nothing bad can happen to you, and since nothing bad has happened to me, it must mean I am good and therefore safe; that sort of thing. In the same way military men tell themselves that they can’t die because they don’t make mistakes. But the best soldier can drive over a land mine.

Go back and watch the beginning of Saving Private Ryan if you’re up to it. The fates of all those soldiers maimed and killed on Omaha Beach had virtually nothing to do with their skill, their character, or their perseverance. That is what makes the scene so realistic. And so deeply disturbing.

All the skill in the world won’t save you if your number is up.

* * *

But this is not to say that a career in investment banking is a total crapshoot, or that skill and hard work are meaningless, or even that my silly business looks anything like a wartime charnel house on most days. Like soldiers, investment bankers do need to be highly trained, hard working, aggressive, and persevering. A quick and nimble intelligence helps too. Without those traits, the odds are stacked against you. Just like landing Higgins boats full of fat, out of shape, untrained soldiers on the beaches of Normandy would have resulted in even greater slaughter, you don’t want to go into battle on an IPO or an M&A trade with dim, lazy, unengaged, incurious loners who are going to lower your odds of success. You can’t guarantee deal or career success in my business without some measure of smarts, guts, and tenacity—you can’t guarantee against abject failure, either—but at least you can tilt the odds somewhat more in your favor. Every little bit counts.

I’ve always told my junior bankers they should not worry too much about working on successful deals early in their career. While working on successful deals is always more fun than working on failures, they are not responsible for producing revenues the way someone like me is. That is why most investment banks work very hard to protect their junior bankers from wholesale cuts under most circumstances.4 Besides, it is my firm belief that you learn far more about my business and the people in it—clients, counterparties, and colleagues—from observing broken deals than you do from the successful ones. You become a better banker by experiencing and learning how to deal with failure, and the best clients are always looking for the banker who knows what to do when the train jumps the rails.

So, future Jamie Dimons of the world, I’ll give you the same advice I’ve given my Analysts, Associates, and Vice Presidents for years: keep your head down, work hard, and keep your wits about you. If you do get hit, at least you can take pride you did everything in your power to survive and thrive.

And I promise I’ll stand you a drink on the other side.

If anyone’s gonna catch a bullet, it’s most likely gonna be me.

Related reading:
Joris Luyendijk, Happy banker: ‘There's something narcotic about landing a big deal’ (The Guardian, July 19, 2013)
Joris Luyendijk, Happy banker, post-redundancy: ‘I still don’t think investment banking is a terrible environment’ (The Guardian, July 19, 2013)
Overheard at 85 Broad Street (June 18, 2008)
Go Ahead, Live a Little (May 12, 2013)

Photo credit: Saving Private Ryan.
1 Although that could be a useful ancillary effect.
2 The recent articles on investment banks hiring the idiot sons and daughters of powerful clients and potential clients is only the most recent proof that such an argument has always been counterbalanced by other considerations, at least in a minority of cases.
3 Or the elevation of friends or enemies into positions of power at your own firm. That’ll help or hurt you more than anything most of the time.
4 The exceptions to this, while generally execrable, usually only happen when industry or firm conditions are particularly dire.

© 2013 The Epicurean Dealmaker. All rights reserved.

Sunday, May 12, 2013

Go Ahead, Live a Little

Kick ass and take names, sister
Longtime followers of this cut-rate opinion emporium will recall your Humble Bloggist to be a gushing fan of Financial Times management inquisitor Lucy Kellaway, whose rapier wit, ear for human folly, and impeccable judgment have always encouraged me to envision her as a modern-day Musketeer wielding a PhD in bullshit detection while sporting sensible shoes.1 Among her many other contributions to modern society, she presides over an occasional agony aunt column for victims of financial capitalism entitled, appropriately enough, “Dear Lucy.”

As chance would have it, a recent inquiry therein puzzled me enough to encourage me to pop my head up from my hidey hole in the Volcano Lair and offer a judicious comment or two. The hapless correspondent’s plea is brief:
I have worked in Global Markets for an investment bank since I graduated six years ago. I’ve recently been given the opportunity to go travelling with my boyfriend, but I wonder how long I can be away from the industry and still have a good chance of being re-employed on my return. Six months? One year? Three years? I’m also aware that when I get back, I’ll be an attached, childless woman in her early 30s, which shouldn’t affect my employment chances but I’m worried it will.

How can I manage this before we go to leave as many doors open as possible?

Banker, female, 28
* * *

Now, my first reaction on reading this tidbit was “Huh?” The emphasis, phrasing, and even question itself is all wrong. “Bloodless,” Lucy calls it, and bloodless it is. Putting aside the apparent implications for this person’s relationship with her boyfriend, it raises serious questions in my reptilian Managing Director’s brain concerning the status of her employment. Certain clues, like “worked in” and “being re-employed” lead me to believe that, notwithstanding this supplicant’s self-selected sobriquet, she is nothing remotely like a real, front office, revenue-generating “banker” and is instead a faceless, gormless member of the administrative, sales, or information technology support staff at her so-called investment bank. A real global markets banker worth the title would have 1) puffed herself up—“built a successful career in Global Markets for a leading investment bank”—and 2) crumpled the letter up and thrown it away before sending it to Lucy, because of course any bank in their right mind would hire a banker of her genius and ability no matter what the fuck she did for three years. People who are successful (and who have a sporting chance of success) in my business just don’t undersell themselves the way this person does.

But, in the interest of charity (and producing a blog post more interesting than this might otherwise be), I will choose to put another spin on the affair. Perhaps her passive-aggressive boyfriend—who has had to listen for years to glowing reports of her fast-paced, exciting life among funny, brilliant, puissant young men who make many multiples of the pittance he brings in as a clerk at the Carphone Warehouse—sent the letter to Lucy in hopes of guilting her into quitting her job and paying for his beach vacation in Phuket for the next three years. Or perhaps this person really is a talented, driven revenue producer who eats nails for breakfast and spits iron filings for lunch but, like many in her industry, is simply incapable of writing her way out of a paper bag with a map and a blowtorch. Or maybe even this person makes £100 million per year trading Cadbury DairyMilk futures for her desperately grateful third-rate Spanish commercial bank but has been cowed by all the ex-Carphone Warehouse employees waving “Occupy Whoever Has Money” signs in Trafalgar Square into epic self-deprecation.

You get the idea. Let’s assume the improbable and take this person’s letter as sincere.

* * *

In which case, my next question is also “Huh?” For a person who has been working in the capital markets division of a major investment or universal bank for six years surely should have developed some horse sense about her industry. People just don’t take sabbaticals in capital markets or investment banking. As Lucy rightly says, things change too fast. Markets change, securities change, customer relationships change. Disappear for one year, much less three, and nobody will remember your name, much less care what you have to say about anything.

I had a Managing Director tell me years ago, when I was a mere pup, wet behind the ears, that the best strategy to succeed in investment banking was to keep your seat. Success would come, and success would go, but you could never enjoy the fruits of good luck or a heated market if you weren’t in a position where you could get paid. Young and naive as I was, I remember finding this advice rather cynical and dispiriting. Surely you kept your seat and made lots of money for your firm because you were really good, because clients respected and trusted you, because you gave them great advice. Because you were better than anybody else. This was stupid on my part. He was right.

Nobody is indispensable in my industry. Nobody. Ever. For every hotshot trader or investment banker glorying in her run of luck and outsized compensation, there are twenty waiting in the wings who could do just as good a job. And a hundred who would be willing to work for half pay to prove they could do so too.

I’ve said it a billion times: in investment banking or sales and trading, you’re only as good as your last deal or your last trade. And your last deal or your last trade had much more to do with you being in the right place at the right time—being in the right seat—than with your charm, skill, or intelligence. And none of us know when the right deal is going to hit.

Everybody figures this out sooner or later. Senior management knows it by heart. So when a banker leaves the industry of their own volition, the message is very clear: “I’m never coming back.”

* * *

Which is not to say you shouldn’t do it. Hey, maybe you’re tired of the grind. Maybe you’ve done your time in Hell, and it’s time to enjoy life a little. Working investment banking hours, under investment banking pressure, with a bankful of aggressive, psychopathic assholes for six years until the age of 28 is enough to make anyone want to chill out on the beach with an umbrella drink for a year or three. It’s your life.

Just don’t have any expectations that your old job, or anything like it, will be waiting for you when you get back. Your experience will be stale and out of date: useless. And there is nothing about your charm or intelligence that will distinguish you from the line of a hundred identical eager valedictorians waiting outside our hiring office. If anything, they’re probably hungrier and more naive (hence more malleable) than you. Intelligence is table stakes. What really makes an investment banker successful is drive and ambition. Will you still have it after traveling the world?

If so, feel free to reapply. But, take it from me, you better have some damn good stories to tell: why you left, what you did while you were away, and why you want to come back. Those are real assets. The rest of us poor slobs who stayed behind want to hear what the real world looks like. But more importantly, we want to believe if we give you one of the scarce seats we have to offer you’re going to have the skill and the drive to make us—and yourself—a boatload of money. That’s the tradeoff: our seat, and the opportunity to make ridiculous amounts of money if you’re lucky, in exchange for your single-minded ambition to do so.

Investment banking is a jealous mistress. She does not suffer indifferent commitment gladly. And she has far too many suitors for her favors to dally with anyone who is not willing to give her one hundred percent.

You do the math.

1 In contrast, say, to lazy dilettantes too eager to take cheap shots without doing the hard work of actually critiquing all too widespread management idiocies in an enlightening manner.

© 2013 The Epicurean Dealmaker. All rights reserved.

Sunday, March 10, 2013

Curriculum Vitae

An investment banker without a cigar is like a day without sunshine.
Such a clever Toad.
Nec species sua cuique manet, rerumque novatrix
Ex aliis alias reddit natura figuras.
Nec perit in toto quidquam, mihi credite, mundo,
Sed variat faciemque novat: nascique vocatur
Incipere esse aliud, quam quod fuit ante; morique
Desinere illud idem; quum sint huc forsitan illa,
Haec translata illuc; summa tamen omnia constant.

No species remains constant: that great renovator of matter
Nature, endlessly fashions new forms from old: there’s nothing
in the whole universe that perishes, believe me; rather
it renews and varies its substance. What we describe as birth
is no more than incipient change from a prior state, while dying
is merely to quit it. Though the parts may be transported
hither and thither, the sum of all matter is constant.

— Ovid, Metamorphoses, XV, 252–258

It occurred to me the other day while trimming a pensive cigar, O Dearly Beloved, that, while I have slain (or hopefully at least severely incommoded) many dragons in these pages and sacrificed many billions of pixels on the Altar of Knowledge for the benefit of your education and illumination, I have perhaps been remiss in one important respect. I have written at length as to how (and why) a hopeful supplicant might enter the grand and glorious vocation of investment banking, and I have dilated at even greater length on what grizzled old veterans such as myself do once we have achieved our cushy sinecures therein. But I have distinctly overlooked the steps by and through which an eager young tadpole fresh from the leafy groves of academe transforms him or herself into a hoary old bullfrog barking orders and swilling scotch from a gilded lily pad.

This, I freely confess, is a lamentable oversight. For the metamorphosis through which said tadpole transforms itself into said bullfrog is neither simple, obvious, trivial, nor pain-free. Many (most, really) are the novitiates entering the holy precincts of my industry who never take their final vows, and few indeed are those who manage not only to climb the slippery pole to the even slipperier platform of Managing Director but also, mirabile dictu, to stay there. A young tadpole, just starting out, would be wise to learn the path lying ahead of her before she chooses to undertake such a harrowing journey. Let this post, then, serve both for my penance and your edification.

* * *

So, let us say our aspiring tadpole has done everything right in her first 22 years, developing sufficient proof of intelligence and superhuman extracurricular talents and activities to have persuaded both an elite university and subsequently a prestigious investment bank to welcome her into their ranks. She, being both a clever reader of these pages and allergic to onion cheeseburgers for breakfast, elects to join the corporate finance and M&A department of her bank, rather than the boys’ locker room on the sales and trading floor.1,2 After submitting to the usual hazing rituals of fingerprinting and her bank’s formal training program, our heroine collects her building pass and makes her way to her cubicle as a newly minted


Now the actual specifics of our novitiate’s duties and day-to-day activities will depend quite heavily on her bank’s organization and practices when it comes to Financial Analysts. Some will put her directly into a dedicated product group, like mergers & acquisitions, where she will be tasked with supporting senior M&A bankers in executing transactions alongside other bankers. Others will place her in an industry group, like Healthcare or Energy & Power, where her job will be to support industry-focused bankers who originate and execute all sorts of deals for their clients, including M&A, capital raising, and the like. Still other banks will put her in a large analyst pool, where she will be one of many analysts loaned out on a case-by-case basis to support bankers from different groups across all of corporate finance and M&A.

In general, however, these minor details don’t matter for our purposes here. A Financial Analyst’s job is to support senior bankers, from Managing Director on down, and to do whatever they ask her to do. Most of the time, this involves doing research, maintaining and updating various databases, creating or modifying financial models for specific transactions or a range of related companies (known as “comparables”), and editing and producing tons and tons and TONS of presentation books. Analysts work under close supervision by Associates (the next rung up) and sometimes Vice Presidents, who supply the content of each presentation or related work product (at the direction of their superiors) and who check the Analysts’ work for completeness and correctness. Analysts, being bright-eyed, intelligent, but largely clueless young things who usually look like deer in headlights or zombies on Adderal, almost never travel and rarely get to attend client meetings. When they do, they virtually never speak and are only there to hand out the presentation books to other attendees. At the biggest banks, an Analyst may only see her Managing Director once a year in the distance, like some mythical unicorn, and only read about her clients in The Wall Street Journal.

Analysts tend to work the longest hours, are in the office late every weeknight and most weekends, and rarely see the light of day. If shit flows downhill, Analysts are the ones at the bottom collecting and processing it every day before they hand it back up the chain of command, hopefully prettier and less aromatic than when they received it. Analysts are cannon fodder.

Now, because of this, you can see that a successful Analyst must have several important traits. She must be intelligent, patient, hardworking, relentless, unflappable, diplomatic, self-sacrificing, and forbearing. She must always maintain her equanimity, even in the face of a spittle-flecked Associate berating her for not correcting his misspelling of the client CFO’s name in a presentation book or a Managing Director who looks at her blankly when she asks how the meeting she skipped Christmas Day with her family to prepare the book for went (the client cancelled). It helps if she is a wizard with Excel or Powerpoint or Capital IQ and is a great stickler for detail (like saving her misspelling Associate’s ass). It is extra good if she is innovative and comes up with new ideas for doing things, better financial models, or even a clever suggestion for something even her MD has not thought about on a deal. Taking initiative and asking for more work is like whipped cream with a cherry on top.

What she is not expected to do is come up with the ideas her seniors pitch, cold call new potential clients, manage transactions, or sell. Most Analysts are hired for a specific stint of two years, after which they are encouraged to move on. Most do: some back to business school for an MBA, some to clients or other industries, and a few—usually the most proficient modelers and most eager deal junkies, natch—directly to private equity, where they will trade client service kneepads for a spot on the bottom rung of a financial sponsor and the dream of becoming another Steve Schwarzman or Leon Black. Increasingly, many banks have begun to encourage their top Analysts to stay on for a third year, and sometimes even a fourth plus a field promotion to Associate, if both they and their seniors are willing. It makes sense: why lose your best-trained, most competent people to business school or the competition?

* * *

The next rung up the investment banking ladder for our aspiring tadpole is


In large part, the Associate’s job is very similar to that of the Analyst, with the exception that the Associate has both the authority to delegate and direct Analysts in their work and the responsibility to get the output right. Associates tell Analysts what to do, when to do it, and check their work when it is done. They take their marching orders from Vice Presidents and above. Associates are, to mix another metaphor into my bloggy blender, the corporals of the investment banking world. Sure, they have authority over the privates, but they spend their lives taking fire in the same foxholes the Analysts do. If an Analyst is not available or cannot do the work, the Associate does it herself. Associate hours look almost indistinguishable from Analyst hours. They spend their early years neck deep in the same shit.

The difference is that most Associates are hired into banks straight from business (or other graduate) school. This often leads to the amusing situation where a newly-minted MBA without prior banking experience, like Yours Truly in his early years, is supervising a highly-trained second-year Analyst who knows approximately 500% more about every topic, tool, and method we are supposed to be using for an assignment than I do. In such cases, a certain humility and facility for fast learning is indispensable. An Associate must also learn to manage up as well as down. It is the Associate who has to tell the frantic Vice President or imperious Managing Director that, no, spreading the entire S&P 500 over the weekend is neither possible nor a good use of overstretched junior resources, no matter what they think Warren Buffet might like to see (if only they could get him on the phone). Associates are also expected to participate in more client meetings and the occasional travel, while still keeping their mouths shut, so they can begin to absorb industry knowledge and sales tips and tricks from their betters. Plus carry their superiors’ bags.

Associates, of course, are the most junior investment banking professionals who have actually taken final vows. Unlike Financial Analysts, many of whom sign up for a two-year stint to get a prestigious job on their résumé, make some money, then light out for the territories never to be seen again, Associates are expected to be lifers. Unlike Analysts, they usually start their careers specializing in a particular product area (like M&A or Leveraged Finance) or industry coverage group. They are expected to learn not only how to make flawless pitch books and financial models and manage the Analysts supposedly doing the work, but also the ins and outs of their groups’ business, clients, competitors, and transactions. Depending on the size and staffing of their banks, they may be asked to interact directly with lower-level employees at their clients’ companies on routine relationship or deal matters. They normally take first-line responsibility for making sure all the endless minutiae of investment banking transactions, both internal and external, move as planned.

In order to succeed, our Associate must make sure everything she is asked to do comes out perfect and on time. She must take the initiative to look for more work, since there is always more work to do, and she must begin to learn enough about her profession to offer intelligent, insightful observations and suggestions when they are helpful. She must learn to manage a very wide range of high-strung personalities under conditions of extreme pressure. The Associate must aspire to be (and be seen as) the ultimate safe pair of hands. Associates do not have responsibility for maintaining existing client relationships or developing new ones, and they have no sales or revenue responsibilities, but they are attached to the success of their group and their department in a way no Analyst is. The Associate is responsible for both her performance and the performance of her subordinates, but Associate is the first role in my industry where a professional is expected to grow out of her role and into the next one. Being an Associate is the first real step on the ladder of apprenticeship in my business.

* * *

If all goes well with our tadpole’s development, sometime within four to six years she should be promoted to


Vice President, as the rather pompous title implies,3 is the first time a banker is truly expected to become a real expert in something: an industry, a product type, a set of clients. In exchange for insulation from the day-to-day grind of shit farming in the trenches with the Associates and Analysts, a Vice President is expected to start coming up with ideas for her group’s clients, start writing most of the group’s presentation materials, and start supporting her Managing Director much more closely in sourcing and originating deals. A Vice President is expected to attend most client meetings and begin to contribute meaningfully in many. A VP is also expected to take lead execution responsibility in-house and out for active deals, and is usually the point person a client CFO interacts with daily during a live transaction. While it is unusual for Vice Presidents to source new client relationships or live deals, it is entirely expected they will assume an increasing share of the burden of maintaining existing ones. Vice Presidents often become the glue for their groups and act as clearinghouses for administrative tasks as well as growing into more of a sales role in support of their MDs.

Vice Presidents are not expected to do basic research, program or update financial models, proofread presentation materials, or nitpick production details like fonts, color schemes, or graphics formats. In other words, they are not expected to do Analyst and Associate work. However, like all investment bankers, they are responsible for the work produced under their watch, so if a VP’s Analyst and Associate produce crap work, it is up to the VP to fix it, even if that requires her to pull an all-nighter doing so. (In which case, the Associate and Analyst better watch their asses.) Vice Presidents are also not expected to generate revenues independently, although their performance getting and executing deals in support of their MDs is important enough that they can begin to enjoy meaningful performance bonuses in line with the group’s success.

Because the nature of the job shifts so dramatically from anal-retentive, in-the-weeds detail mongering to actual independent thought, interpersonal relationship cultivation, and growing sales responsibilities, the transition from Associate to Vice President is the most fraught for many investment bankers to manage. The very intellectual and personal qualities which make you an attractive and effective candidate for Analyst or Associate become increasingly irrelevant, only to be replaced by interpersonal skills and predilections which are often fundamentally at odds with your prior role and responsibilities. For this reason alone, we see substantial attrition, both voluntary and involuntary, in Vice President ranks across my industry. It is not for nothing my fellow Associates and I made fun, shortly after we arrived, of an aging Vice President at my first firm, who could not seem to make the transition. We dubbed him amongst ourselves a “very, very good Associate.” He did not last long.

I have said it before: the higher you get in my business, the more it becomes pure sales. Vice President is when a banker really begins to see the truth of this remark for herself, and it is when she (and her bank) must make the determination whether she has the goods to continue.

* * *

Finally, after four to seven years of flogging herself and her bank as a Vice President, the successful frog finally breaks through and becomes a


At this level, which is mine, the job morphs completely into pure commodity sales. Managing Directors’ one and only responsibility is to bring in revenue, in the form of deal fees, and they do it any way they can. Some of us become product experts, like M&A or Leveraged Finance gurus, who have no clients of our own but who are indispensable to MDs who do have clients that want our products. We execute transactions which generalist MDs cannot, and we get to split the fees and the credit for our efforts. Some of us get to know an industry backwards and forwards, making ourselves better informed about the strategy and operations of that industry’s participants than any one of them could possibly become themselves (since competitors, duh, don’t talk to each other). Others of us cultivate and maintain new and existing relationships with paying customers, wining, dining, and schmoozing the drunken sailors who weave across the landscape, dispensing dollars, pounds, and euros for transactions large and small. Such MDs’ highest and only purpose in life is to be relationship bankers. At the biggest banks, these MDs act as concierges for the product and industry experts in their ranks, introducing their clients to the people who can actually execute the deals in question. At smaller banks and boutiques, relationship bankers usually pick up the tools and execute the deals themselves, as well.

It doesn’t matter. The only rule for Managing Directors is to bring in the simoleons. That is our job.

As you might expect, we don’t pay attention to the details of our presentation materials or the day-to-day minutiae of live transactions. As soon as we land a new deal, we are off, looking for the next one. We don’t get paid for hand-holding, relationship building, deal-doing, or advice-giving until and unless said activities result in legal tender clearing our employer’s bank account. Of course, some of us do pay attention to such non-revenue trivialities, if only because we play a long game in which delivering on your promises, providing good quality service, and sticking to your word actually affect your ability to make money in the future. But the point is we do not proofread our presentation books the night before the big pitch, unless something is seriously wrong. The best investment bankers don’t need presentation books to win deals. The best meetings I have had have been ones where I did not even open the book. Yes, I am that good, but, no—too—the printed materials really aren’t that important. After all, if I wanted to sell glossy presentation books I’d work for Kinkos.

* * *

Of course, above my rank there are Group Heads and Department Heads and Division Heads and the Executive Committee of the bank—not to mention the C-suite—but that is not an arena in which I am really interested in playing. Above the revenue-generating Managing Director level, your job becomes one of politics first and foremost, not finding, developing, and serving clients. Some people love that shit, and some are very good at it. Not me.

But if you are one of those people whose life ambition is to become Jamie Dimon, you don’t need or want my advice anyway. In fact, it was probably you who slipped the knife between my shoulder blades while I was writing this.

I thought I felt a twinge.

Related reading:
A Corporate Finance Bestiary (March 13, 2010)

1 Those among you who are in fact fond of onion cheeseburgers or who have other reasons to prefer the generally faster-pace and shorter hours of the trading floor will likely have to look elsewhere for your education on what the evolution of a new recruit into a senior salesman or trader looks like. While the titles and the raw material are largely the same, the day-to-day job and career paths are foreign enough to my experience that I would do you a disservice if I pretended to know what they are like. Sorry.
2 By the way, I’m not making up the bit about onion cheeseburgers for breakfast just to be a prissy corporate finance asshole (although I’m probably that, too). Michael Lewis relayed it as a key plot point in describing Lew Ranieri and his mortgage-backed securities traders in Liar’s Poker. Look it up. To be fair, I haven’t smelled one on a trading floor in years, so those dietary habits may no longer exist. You never know, though. And it is a great dig.
3 It is no coincidence that the investment banking role which first entails meaningful client contact bears the title Vice President. After all, VP actually means something in the real world of non-financial corporations, where Vice President posts tend to be relatively rare and occupied by seasoned professionals. It is my industry’s sop to the poor 55-year-old Chief Financial Officers who have to talk daily with our 30-year-old VPs in the course of billion dollar IPOs and ten billion dollar mergers. At least they can kid themselves that they have the ear of a senior officer of their bank. (There are approximately umpty billion Vice Presidents in my industry, and approximately none of them have signatory authority.) We learned this trick from the commercial bankers, by the way.
4 Often (usually? why would I care?) there is a transition step between VP and MD entitled Director, Executive Director, or Principal. All you need to know is that this role is a hybrid between Vice President and MD, with hybrid responsibilities and characteristics. Just mix the two in your mind, and I’m sure you will be able to follow the plot. After all, you’re a clever person: just interpolate.

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