|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.
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.
© 2013 The Epicurean Dealmaker. All rights reserved.