Yeah, I would think that product groups are the most risky because they are so cyclical. Coverage groups always have client to pitch to regardless of the economy.

"Greed, in all of its forms; greed for life, for money, for love, for knowledge has marked the upward surge of mankind. And greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the USA."
 
monetarist001:
How about the Restructuring Group?

Inverse relationship to the other product groups. When the economy gets shitty, its get going. Its not like your won't be doing anything during different parts of the economic cycle, its just that every dog has its day.

"Greed, in all of its forms; greed for life, for money, for love, for knowledge has marked the upward surge of mankind. And greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the USA."
 
monetarist001:
Is it common for the Restructuring bankers to get laid off during the economic good times?

I highly doubt it. There will always be companies that need restructuring, it just so happens that their busy season is when all the other groups are struggling.

"Greed, in all of its forms; greed for life, for money, for love, for knowledge has marked the upward surge of mankind. And greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the USA."
 
monetarist001:
So Restructuring has extreme troughs and peaks. How about Corporate Derivatives and Structured Finance (private side)? Do they have extreme troughs and peaks too?

Yes. Everything is cyclical. When the market crashes, risk disappears and structured finance deal flow dies. Look nothing is recession proof, and don't think that your just going to lose your job when the market turns...you just ride it out and wait for the next change. If you want a job that is extremely secure look at MO and BO, otherwise focus on looking at groups that you might be interested in.

"Greed, in all of its forms; greed for life, for money, for love, for knowledge has marked the upward surge of mankind. And greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the USA."
 

I would choose M&A despite a looming recession because it will provide solid exit opps and you will gain a solid skill set. I would imagine that the majority of your M&A work will consist of strategic corporation M&A, at least until the debt markets recover and PE firms are able to obtain necessary financing (I know we are currently struggling to get even remotely acceptable terms on our ABL and CMBS financing).

I also think RE may be an interesting opportunity as you will be involved at the bottom of the cycle and gain a strong understanding of what drives RE value (including a strong Macro-economic perspective of RE and global markets).

Not a great time to get involved in the industry but there is certainly value to be had in the experience. Good luck.

 
Best Response

Not sure who you've been talking to HerSerendipity, but I'm at a consumer/retail focused fund that meets with bankers on a pretty regular basis and pretty much all CR groups across the board are getting whacked. Not to say it wouldn't be a pretty good group (especially at GS) to be in, but let's not distort the facts here, consumer/retail as a whole is suffering pretty badly right now and the sector is incredibly cyclical - not exactly what I'd call "recession proof."

Don't do infrastructure unless you have a big interest in it, it's too specialized. My friends in various infrastructure groups are having extreme difficulty going to corporate private equity (despite the principal investment nature of the group).

If you're at MS or GS, health care isn't a bad group to be in. There are enough silos within HC so that it's always pretty busy (the downside is in a bull market, the hours can be pretty painful if everything is firing on all cylinders). The cyclical groups are things like biotech and most life sciences, but that's offset by defensive groups in services (managed care, CROs, hospice/SNF/ALF, hospitals, etc.).

The umbrella disclaimer here again is, don't join a group you're not interested in.

 

but I guess i'm speaking specifically to my bank. one of my good friends in consumer/retail is very busy with deals right now. She hasn't said much about layoffs in our particular bank, especially when I was freaking out about all the layoffs happening two weeks ago. Sorry to the OP - not a particularly helpful suggestion on my part.

Infrastructure is specialized, I agree, but it's also heating up to be a great place to be in the next few years (especially broad) it seems. I've been speaking with a bunch of alums in the PE business (seeing if it's something i'd like to jump to next year), and they've all specifically said point blank that it's the place to be. Take it for what it's worth.

 

Consumer / retail is definitely not recession proof. Even investments that may look like an attractive equity play don't work when lenders are too scared to touch the financing.

Recently showed a couple of consumer / retail business CIMs to a number of lenders, and I'm pretty sure I could could actually hear them throwing up on the calls.

 
smuguy97:
Consumer / retail is definitely not recession proof. Even investments that may look like an attractive equity play don't work when lenders are too scared to touch the financing.

Recently showed a couple of consumer / retail business CIMs to a number of lenders, and I'm pretty sure I could could actually hear them throwing up on the calls.

I definitely feel that pain. We own a company that is a nationwide market leader in a fairly niche market of specialty retail that has been whacked hard across the board (upwards and downwards the line from supplier to customer - everything from raw material costs to dwindling demand and discretionary income). While we are doing fine, our bank group is EXTREMELY jittery. To provide some comfort, we held a lenders update call (something we didn't have to do, but we were receiving so many inbound calls it was tough to ignore). The call was supposed to last an hour all in, but it went for 2 and a half hours - all 45 of the holders of the paper dialed in and had 90 minutes of questions. People are very nervous about consumer/retail.

 

You're right about Infrastructure, it is growing rapidly, especially through emerging markets. However, I'm not sure what the context was in your conversations with PE professionals - if they said "it's the place to be" as in, it's hot area of the bank generating revenue, or "it's the place to be" as in, great experience if you want to move to PE.

A couple notes - a successful infrastructure group is highly dependant on a few things, among that is the ability to provide a huge amount of leverage (steady cash flows and government involvement makes for a safer investment), and also oftentimes equity bridges. Both of these things are scarce these days with many of the larger banks stretched tight for liquidity and capital - the last thing they want to do is extend an equity bridge, and underwriting is all but shut down. I seem to remember PowerMonkey being in an infrastructure group/fund at a major bank - if anyone really cares, he could probably speak to it more intelligently. I do have friends at a few of the top infrastructure groups, and by no means are they immune from the pain that's been traveling through the major banks.

As far as moving to corporate PE, it's tough. PE funds are notorious for being relatively close-minded when it comes to skillset transferrability (sometimes it makes no sense, but its their prerogative). While oftentimes you're dealing with highly levered financing, IRR calculation, etc. in Infrastructure, the modeling and financial statements are quite different (and sometimes more complex) than your traditional LBO. My intuition, however, is that most corporate PE funds will not give you credit for this kind of modeling experience. Not because they don't think you are smart or can't do the work, but simply because there are too many qualified candidates out there who don't have to be "re-taught."

 

Agreed on all your points. I mean infrastructure it as its a hot area of banking generation revenue (assuming you can get past all the obstacles you listed above). As far as the equity bridge goes, I agree. My bank was completely against the idea of funding a bridge for a deal we are on. Although, we will get a ludicrous amount of fees for compensation if the bridge is funded.

I guess I am biased because I am in an infrastructure/power hybrid group. The skills I've gotten so far seem very specialized and I was pretty worried that I wouldn't be able to transfer them. Speaking to a few 2nd years in my group who already have PE offers lined up, they all said it was fairly easy to pick up the LBO modelling and all the bells/whistles attached to it. They were able to pass the modelling portion of their interviews without a problem.

If I were to find an exit opp in PE, it'd probably be at an infrastructure or energy/power fund. I have no real interest in joining the larger cap PE shops and like the specialization.

 

Health as an industry is pretty stable, especially compared to a few others. Pharma/biotech usually reflects the market while payor/provider is usually less affected by the market. The reason being that there are a lot of players out there who are still in the midst of a roll-up strategy dating from the mid 90s and their decision to move to the next acquisition is more about whether the management team is ready than any macro effects.

One thing I don't understand is why every single BB health group seems to be a sweatshop?

ideating:
One thing I don't understand is why every single BB health group seems to be a sweatshop?

There's just a large amount of sectors covered by health care, there's always work to be done. Not only are certain sectors up and down depending on the market environment, but each one tends to gravitate towards one or more different financial products. I also think that health care groups get labeled sweatshops universally, but that's not always the case. Yes, the hours are probably worse on average than most groups, but it's more of a function of steadily long hours vs. having easy weeks and brutal weeks in other groups.

 

Question for everyone:

Is the skillset acquired in a Natural Resources Group really as specialized as I have heard?

While it is rather "recession-proof," I would hate to be pigeonholed into pursuing strictly energy funds and etc.

Can someone comment on this? I like Consumer/Retail, but it is definitely getting hammered in this environment...so should I suck it up and do Natural Resources?

Additionally can someone comment on how Communications/Media Groups are doing?

 

Retail and cyclical consumer may well be getting hammered.

However, non-cyclical consumer goods are fairly recession-proof, hence "non-cyclical". Last time I checked, people are still buying their food & drink, their laundry detergent, and their shampoo. As everyone knows, people drink alcohol whether times are good or times are bad.

And on that note, I think I'll head out on a smoking break to relieve my stress.

 

Question for the consumer retail guys (this not meant to be negative). What would you say to the argument that consumer/retail is the simplest sector to learn?

When I was deciding what groups I liked, somebody once told me that it is infinitely easier for a Tech, FIG or Energy banker to be successful in the consumer/retail sector than vice versa. Obviously, this is because Tech, FIG & Energy are extremely technical. The argument they were making is that the consumer/retail group would actually be the more limiting group (in terms of knowledge base) than one of the more technical ones.

I am NOT trying to argue that I think this point is legitimate, just wondering what your perspective is on it?

 
jbc2436:
Question for the consumer retail guys (this not meant to be negative). What would you say to the argument that consumer/retail is the simplest sector to learn?

I wasn't a consumer guy before I joined my fund, I was in another industry group. I only felt my banking group was more difficult to learn because I didn't know much about it before I joined, whereas almost everyone recognizes a lot of consumer/retail names. I suspect that's the main difference between CR and the other industries you mentioned. Every industry has it's deep dive items, but CR is probably one of the easier to pick up (and that's neither good or bad). The only somewhat difficult thing about retail specifically is modeling revenue growth from new store openings over the course of the year - building prototype stores (or superstores) and assigning variable and fixed costs, then using a weighted stub year to account for new store revenue.

 

Thanks for the great comments guys.

So far it seems: Healthcare Industrials Real Estate

are the more "recession-proof" groups

What about TMT, Industrials, and just pure M&A?

 

Since this has come out yet again, I will address the specialization of the NR/Infra/Property skillset (considering those are 3 of the things I have done in banking).

There is a generic investment banking skillset (industry or product group) that you get. It includes "awesome" excel skills, extreme attention to detail, the ability to go long periods without sleep, take lots of notes, sit on calls, kiss ass, network, and generally format presentations.

Within industry groups, you tend to also learn how to comp, run simple models including DCF, LBO and M&A models (key word here is simple) and you learn about your industry.

From here, things get a little more specific depending on the group, bank and individual. Some groups have a very generic product that requires little modeling skill and uses very standard metrics (EBITDA ratios, PE, and thats about it). Certain other groups have highly specialized metrics, modeling and make very in depth models. Natural resources, including energy, power, oil and gas, utilities, etc, tends to have very specific modeling techniques and specialized valuation metrics. The skills learned on the modeling side are extremely transferable and give a solid base, the industry skills aren't very transferable but don't necessarily put you at a disadvantage. The same things are true of infrastructure and to a lesser extent property. That being said, all of these skills are on the operations modeling and structuring side of a deal. So, while you will get great excel skills and have a lot of openings in the general area (NR could goto Infra and vice versa) you might not get a lot of traction with just hanging out and doing work.

This is why deal experience is so key in every situation. If you have experience on LBOs and in debt, then you are just as qualified as anyone else with similar experience and you won't be pigeonholed.

So, if you do relevant work in a specialized field, you're good. If you want to go Big time PE and all you do is model the revenue of a power plant, you'll have a tough time. If on the other hand, you work on huge debt deals, IPOs, and an LBO or two that just so happen to be on a Utility or a Toll road, you're good.

--There are stupid questions, so think first.
 

this was breifly touched on earlier, but energy oil & gas is dependent on the price of the commodity of oil/gas. i wouldn't say recession proof but i think the energy sector somewhat like the commodities sector is less dependent on the state of the economy....

 

The current market environment resembles mid-2001 when there had been layoffs, market troubles, etc. but no one had properly estimated the extent of the damage/downsizing. For a good account of this check out The Accidental Investment Banker (http://www.amazon.com/Accidental-Investment-Banker-Inside-Transformed/d…).

Anyway, the tactics you use depend greatly on what level you're at. If you're an Analyst, there's not a whole lot you can do because your relative impact on the organization is fairly small; being good at your job and having people like you helps but if they decide to fire 90% of the analyst class, you'd have to be a superstar to be part of the remaining 10%.

At upper levels, politics comes into play more often but ability to source deals (as opposed to just executing/doing the work) is important as well. It's harder to justify firing those who are bringing in disproportionate amounts of revenue. Likewise, those who haven't been doing well lately will seem like dead weight even more than usual.

Again, as an Analyst I don't think you can do much besides being good at your job and having senior people like you.

 

Yes. I am quite sure that buying three year puts on the Dow will help you keep your job.

Here's a follow-on question:

The price of one VP/Associate is probably = 5 analysts. Are analysts usually hit the hardest during an economic slowdown or recession? It seems you could make faster progress by trimming your under-performing VPs.

 

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