Goldman IBD not the place to be?
So I came upon an article (link posted below) that states that Goldman Sachs, probably I'm assuming along with other firms, really derive their profits from proprietary trading, not investment banking. If this is true, why is it that on forums like these, investment banking seems to be the most sought after division/group? Is it simply the skillset that working in that division gives you?
If proprietary trading is the real money maker within a place like Goldman and Morgan Stanley or what have you, what specific divisions are these groups in? For example, would Goldman Sachs Asset Management (GSAM, under IMD) be the real cash cow of the firm?
I mention GSAM because I know the private equity group is housed there, along with Goldman Sachs Investment Partners (GSIP), their proprietary internal hedge fund.
I've also mentioned people on here speak about the Special Situations Group within Goldman (SSG), and that being housed under securities (I believe?). Thus, is proprietary trading, housed all over the place within a company like Goldman?
Anyone about to shed light on this would be great.
Being interested in becoming a fund manager in the long run, I'm trying to figure out the best career path and learning experience available. I've continued to be pointed towards Investment banking (M&A) by people familiar with the industry, but if there's somewhere else I should go I'll focus my energy there.
Thanks!
This isn't an answer to any
This isn't an answer to any of your questions but just wanted to point out that the private equity group (PEG) is a FoF in GSAM whereas principal investment area (PIA) is the group that acts most like a real PE group.
IBD in the traditional sense
IBD in the traditional sense is never the primary money maker for an I-Bank. S&T brings in far more revenue.
I think it is rather common
I think it is rather common knowledge that investment banking is not the source of the majority of a large bank's revenue.
Of late for Goldman, it has been FICC, Equities (trading), Investment banking (advisory and underwriting), and investment management...in that order, with IB and IM about even.
It's because it's far more
It's because it's far more realistic to get into GS IBD than their prop desk (now at KKR), GSIP, or SSG. getting into the latter groups is much much more difficult and they take maybe 10 kids a year in total (GSIP took a Rhodes Scholar for example), while a student from a decent school with decent grades and interviewing skills has a solid shot at GS IBD.
if someone had the option to choose between the two almost all would choose the SSG/GSPS desk
This is really
This is really interesting.
So on these forums I've seen a major focus on IBD as opposed to say IMD within Goldman. I've also seen private wealth management within a place like Goldman be shunned on, yet the pay is probably great, no?
From reading these forums it just became clear to me (at least I thought) that the real money machine within the investment banking industry is investment banking, not investment management (private wealth management and alternative investment management etc), or sales and training as an alternative to investment banking but as a trade off being more cut throat.
I'm assuming that the competition for investment banking within a place like Goldman is the learning experience and exit opportunities that aren't comparable to doing something like private wealth, despite the pay being roughly equal?
Really appreciate all your input by the way. Thanks!
Blankfein's own son entered
Blankfein's own son entered GS as an IBD analyst, so it is probably the best entry-level position.
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Think of pure-play investment
Think of pure-play investment banking (M&A, equity issuance, debt issuance, etc - at Goldman M&A is not a separate service, by the way) as the investment bank's military: the generals (Partner MDs and MDs) call all the shots and have an army of colonels and lieutenants (EDs and VPs) at their disposal, who manage the utterly expendable ground troops (corporals - associates, privates - analysts, and cadets - interns) that do the heavy lifting. Most of these ground troops "die" or are "honorably discharged" (ie. they quit, they go to the buyside, they go to f500, they go to b-school) and some of them make it to officer class. I should mention that sure, within the military you have some groups that are higher regarded (say, the Marines, who could be TMT at Goldman or M&A at MS or the old Financial Sponsors at CS, what have you) and perhaps some that are less (perhaps the communications guys who work with the Air Force and the Military, being perhaps the equivalent of Capital Markets). Nevertheless, the military is at the heart of the investment bank's brand, it's where many of the oldest relationships are, and it's where much of the culture has been forged - dress code, speaking code, etc. No matter what happens to the investment bank, there will always be the investment banking division. It's the military.
Now, the military could find itself eclipsed both in terms of bad-assness and in terms of budget. When we focus on the latter, we get to Sales & Trading ("Securities", in Goldman's case). Think of Sales & Trading as basically the Air Force and the Navy (you could choose to assign Equities to one and FICC to the other, or Sales to one and Trading to the other - doesn't matter). The beauty of being in the military is that you're a generalist war machine - and thus the beauty of being in IBD is that you're a generalist financier. But with S&T, as with the Air Force and the Navy, you are a specialized instrument of war - whatever skills you develop in on an aircraft carrier or piloting a jet or working on ballistics... is best applied in precisely that arena. The Air Force and the Navy are extremely capital-intensive (think of just how much one F-18 costs both to build and to maintain, or one drone, or one aircraft carrier, or one submarine) and frankly, are responsible for a huge chunk of the overall borrowing (look at what war does to the national debt, and S&T to a bank's leverage). And their operations consist of vast swathes of support folk - technicians, radar specialists, engineers, mechanics, strategists, intelligence monitors, etc - who support the front-line fighters in the jets and what not. And in S&T, you have operations, research, quants, risk management, IT etc - all working for those guys who man the phones and the Bloombergs and make the hay. S&T has a much more confined domain than IBD, but it's a hungry, growling, aggressive money-machine - much like the Air Force and the Navy are purpose-built, complex gas guzzlers that are absolutely crucial to the overall success of the mission, or profitability of the bank.
Then you get to the various kinds of special forces: SEALs, Army Rangers, Black Ops, etc – think of these as the internal hedge funds and the in-house buyside within the investment bank. For each one of those, link them to Goldman’s SSG or Morgan Stanley’s PDT. You get more blow-ups with the bank’s in-house superstars (ie. Howie Hubler) than you often hear about with the special forces, but publicly-listed companies have a greater disclosure requirement and financiers have a more porous relationship with the media than you’d find with the armed forces, so that would partly explain the lack of “elite SEAL makes tactical blunder, results in the death of countless US army personnel and innocent civilians, generals and commanders distraught!”. Nevertheless, these special forces pick the best performers from the regular ranks of the ground, air and sea, much like the elite in-house buyside teams at the banks do. You know, not quite "sealless brown envelope left on your desk with an unsigned invitation" or "anonymous telegram informing you to shoot the messenger after reading it" etc, but this is selective amongst selective.
Then you get to the Asset Management side of a bank, which in most cases (especially GSAM, less so the proper brokerages like Smith Barney) has a bit of an identity crisis, not being fully accepted by the rest of the institution, who view it (rightly or wrongly) as a kind of financial backwater-meets-marketing. Many of these folks make a perfectly good living (and there’s a lot to prefer in the life of a senior wealth manager than an investment banker) but many others wind up here sort of by accident; it’s almost like you train for a career in the armed forces and end up working in the recruitment office, liaisons with Treasury or infirmary. Anyhow, this part might be misunderstood.
Hope that helps and also hope it didn’t offend anyone, this should clearly be taken tongue in cheek.
What I've always wondered is
What I've always wondered is why the banks don't mind that their arguably best talent is going into IBD instead of S&T, prop trading etc. where they could make the firm a lot more money?
This is a silly question. You
This is a silly question. You are completely ignoring the importance of the profits to employee ratio. By your logic, "the place to be" isn't the 10 man company that pulls in 10 billion in profit annually but the 40,000 person firm that brings in 30 billion.
Also, you aren't going to make nearly as much money in pwm as you would in ibd. I'm not even going tongo into the night and day difference in skills learned and exit ops.
Il Cavaliere wrote: What I've
What I've always wondered is why the banks don't mind that their arguably best talent is going into IBD instead of S&T, prop trading etc. where they could make the firm a lot more money?
i'm curious as why you think the best talent is just in IB work ethic =/= great trader
Talent for trading/ markets
Talent for trading/ markets is needed for S&T, if you can call it that. There is no talent for IBD, you just need to be well rounded, relatively intelligent, hard working, socially able etc. That does not mean that there are no market/math/logic talented people in IBD, just that they don't really need it in IBD, but can come very handy to get ahead of others if you know how to leaverage it.
I think I have what it takes for S&T but I'm probably not going into it, because I know many other future traders will be better than me and my trading talent is not my strongest relative competitive advantage. Ricardo screwed me out of trading.
In terms of academic
In terms of academic performance and work experience the people who do IBD seem to be way better than the guys from S&T. At least that's my experience. Everyone I know of wants to do M&A, whereas the competition for S&T seems to be lower. Just compare the number of posts in the Investment banking forum vs. the traders train on wso. It just seems a waste to put the best talent in M&A. IBD accounts for like 20% of profits of a typical investment bank. M&A is just a fraction of IBD profit, as most profit is earned in fixed income.
I think the problem is historical. Back in the days M&A was really a key driver for investment banks. The banks have failed to convince the talent that their is other great jobs in investment banks.
Il Cavaliere wrote: In terms
In terms of academic performance and work experience the people who do IBD seem to be way better than the guys from S&T. At least that's my experience. Everyone I know of wants to do M&A, whereas the competition for S&T seems to be lower. Just compare the number of posts in the Investment banking forum vs. the traders train on wso. It just seems a waste to put the best talent in M&A. IBD accounts for like 20% of profits of a typical investment bank. M&A is just a fraction of IBD profit, as most profit is earned in fixed income.
I think the problem is historical. Back in the days M&A was really a key driver for investment banks. The banks have failed to convince the talent that their is other great jobs in investment banks.
You'd be a bit less confused if you re-examine your definition of talent. You approach it from an academic resume point of view; you see more HYP/Stanford/Wharton/Dartmouth/Berkeley/MIT degrees with high GPAs going into IBD and you interpret that as talent. You should instead examine this from three lens: what an employer wants, what the market wants and appetite for risk/temperament.
What the employer wants: the folks who, to you, represent 'talent' want the IB and M&A jobs because the IBD divisions want THEM. Think about what is needed for a successful analyst in IB: you can call it anything you want, but when you drill it down, you essentially need someone who is extremely will to do quasi-meaningless grunt work ad nauseam, for as long as possible, and to do so without complain and even seem grateful for the opportunity. Guess what, the kids who have done absolutely everything they're told to get ahead often end up at America's best colleges, and they're pretty good candidates for this. But how are these skills relevant in a trading environment? Up until the era of the quants (and I'm paraphrasing this but it's just such good insight), the Street's traders, had they been doing something else, may well have been driving trucks. The reason trading floors don't hire MBAs very much is the same reason why they're less of a draw for the 'talent' you describe.
What the market wants: investment banking clients LIKE the idea that they're being advised by hardworking folks with shiny resumes - very shiny resumes. On the other hand, the financial markets couldn't give a rat's ass about your credentials. It's a meritocracy out there and if you're only as good as your last trade, then no one's going to care how much of a goody two-shoes you were all the back in HIGH school. Now, if you've worked your ass off for the past 10 years (getting into the first advanced classes in middle school, all high school, and all college), why would you be drawn to a sector that doesn't seem to place much value on all the hard work you've done, and even worse, will want to test your smarts all over again?
That brings us to our next point, risk appetite and temperament: for plenty of folks who have gone down the path that you describe, S&T just isn't that appealing. A lot of these folks want to see themselves as the future Secretary of State, not munching on a Subway sandwich and intravenously shooting coffee into their systems at age 40 looking at green and red marks on a black computer screen. Plus, S&T is actually subject to market forces; their jobs could get cut real early, maybe even only nine months after joining, and then where do they go? Where's the progression? S&T doesn't allow for the clean and clear cut linear vital trajectories and progressions that the 'talent' (in your words) feels drawn to. Enter IB, which offers a lower (if not outright low) risk path towards becoming a low-level millionnaire, and to boot, with a lot more wining and dining at the senior levels - this looks a lot more appealing, a lot more FAMILIAR. Remember, you're evaluating people by their academics: although some people end up at Stanford or Yale because they are so extraordinarily talented it just 'happens', but most people get there because they've been following a plan. It's a plan based on sequential, easy-to-forecast steps and in which your exit option, or next stop, is always visible. Most of these people spend the first 3+ decades of their lives going from exit option to exit option. IB offers a variety of predictable exit options whereas in S&T, the more likely exit option is... more S&T.
Il Cavaliere wrote: In terms
In terms of academic performance and work experience the people who do IBD seem to be way better than the guys from S&T. At least that's my experience. Everyone I know of wants to do M&A, whereas the competition for S&T seems to be lower. Just compare the number of posts in the Investment banking forum vs. the traders train on wso. It just seems a waste to put the best talent in M&A. IBD accounts for like 20% of profits of a typical investment bank. M&A is just a fraction of IBD profit, as most profit is earned in fixed income.
I think the problem is historical. Back in the days M&A was really a key driver for investment banks. The banks have failed to convince the talent that their is other great jobs in investment banks.
Im guessing you are heading to IBD with those reasoning skills...
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Please go to any trading desk
Please go to any trading desk dealing derivatives and they will have better raw academic talent than any IBD group. This isn't the 80s where high school drop outs became MDs. Get involved in this industry.
The reason why you see so many posts on IBD and many people wanting to go into IBD is because most people at top schools are actually risk-averse. There is a reason why every other post is one about exit opportunities.
Trading attracts better academic AND risk taking talent. You need academic chops to be trading CMBS products not spreading comps for your MD. You need risk taking talent when the market is tanking and everyone is hitting your bid not when you are "managing risk" by alt-tabbing to your pitchbook as your MD walks by your desk.People need to understand that there are not that many traders on a trading floor. Out of the X number of people per analyst trading class, maybe 15-20% will end up with their own book. These positions are specialized and are not labor intensive. For example, you have 1-3 traders managing the credit index book which has notional trade turnover measured in billions daily. There are simply few jobs. However, the people that do get these jobs are really, really good at what they do. The market has a way of weeding out the untalented.
This is not to say bankers aren't talented. Their ability to put up hours and handle the deal process is admirable. Its just a completely different (and for trading pretty useless) skillset. At the end of the day, there is a reason why analysts in IBD are called monkeys - anyone with a modicum of intelligence and work ethic can do the job. This isn't how it works in trading.
Edit: As to why MBAs aren't popular on the trading floor:
1. Business school teaches very little when it comes to a trading context. An undergrad and an MBA has nearly the same applicable trading skillset.
2. MBAs don't have the raw academic chops for the complex desks (an undergrad, masters or PhD in math/science/stat is better trained).
3. There is a hazing process on the desk. MBAs often feel they are "over" fetching coffee and hustling while the undergrads run circles around them.
Why deal with that when you can grab hungry BS/MS/PhDs?
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