Associates who started as analysts: Why did you stay in IB?

my best friend from childhood went analyst -- associate - VP - Director - MD, and is now the co-head of his group....making baller money and living the dream. He rented a baller house in the hamptons for the summer and we were hanging out last weekend...life is good.

Never took years off to goto business school...just worked his way up...and it all happened pretty quickly. Is there something wrong with that?

It sounds like you interned/worked at investment banks that were a complete joke. You probably know next to nothing about the industry and the fact someone was willing to hire you after 3-4 months on the job means they expected you to know absolutely nothing going into that role.

therealgekko:

To the associates who started as analysts at their investment bank, why did you stay? Why not leave for buyside, corp dev, etc. after your two years?

I'm genuinely puzzled by this, which is why I'm asking. I did an internship in banking, and worked in banking as a full time analyst for 3-4 months on the West Coast (until I was able to hop over to buyside fortunately), and absolutely hated it. Maybe my experience was different (I did work at 2 different banks though), but I spent nearly all of my day formatting powerpoint slides, or googling information to put into powerpoint slides (proprietary information my ass).

To those who stayed on, why did you stay on? How did you find any of this work engaging or remotely intellectually stimulating? What are your long term goals with this job?

OP.

Believe it or not, there are people who are different than you in this world

Several reasons why I see A2A promotes stay (mainly from perspective of a BB bank):

1.) You've built up a solid reputation and while despite being just recently promoted to "associate" in reality the way your team interacts with you is as if you were a basically a VP. You start quarterbacking committees, discussions, client calls / needs - this is all in contrast to when you move to MM PE, you are essentially starting back to the bottom of the totem pole and doing all the grunt work (that an analyst typically would do at a BB). I see this particularly true in product groups where certain A2As have developed an exceptional mastery of their product (Leveraged Finance, FX Swaps & Hedging, Securitized products etc), and there are numerous occasions that coverage VPs / Directors and sometimes even junior MDs reach out to that A2A for his/her preliminary thoughts etc despite their title just being just an "associate". Likewise you start delegating the "grunt work" parts of your jobs to the more juniors (KYC, silly PPT formatting) and focus on the more important, strategic aspects of transactions. Very senior bankers (i.e. group heads) begin to notice you and label you as up and coming talent

2.) Pay in Banking is is arguably higher than most lower/mid-MM PE firms that the majority of analysts end up in. Assuming you are quite ambitious and good at what you do, you'll likely be labeled as a top performer and be in the upper end of the bonus buckets (if not top). Note - I've read in the news that MS is currently in progress of actually raising associate base pay (currently at $150k) this summer and I'd bet the rest of the street will likely follow suit through till early 2019.

3.) By an A2A you've become so efficient at almost all parts of a junior banker's job (particularly the admin parts, which take up a surprising amount of your time as an analyst), that you do things instinctively instead of waiting for a VP to tell you to do something, which allows you to save a lot of time. For the rare times you don't know something or can't find something, you know exactly who in the bank to contact to find out (friendships you've developed in the trenches in coverage/product groups, or my favorite ones: close relationships you've developed throughout your time in IT, operations, portfolio, printing, security, front desk, roadshow team etc. you'd be surprised how knowing a good friend in these "back office" functions can make your life so much easier as they can bypass so much bureaucracy for you if they like you haha). Likewise VPs notice this and just trust you to "run the show" for most parts of discussions, committee papers, admin archiving etc, that you are able to set your own schedule (to an extent) instead of having a VP breathing down your neck constantly asking why _____ has not been completed ASAP. If such a VP still treats you in that way, then you have enough clout to push back to them in front of the team and at worst, you can request not to be staffed with one of those bad apples and not have it be viewed negatively on you (it will probably hurt that VP's image more, as it's not to their interest to piss off top talent)

To the OP, it's probably going to be difficult for you to relate as you've only technically worked in banking for 3-4 months, but live deals are actually quite interesting and fulfilling (once you remove the admin parts of the job). The type of bank you are in will also influence this (i.e. working at GS/MS with heavy deal flow and lots of resources vs. working at a no-name boutique with barely any deal flow)

Just my 2 cents, but hope this sheds some perspective

Another factor that people havent considered: some banks actually prioritize work life balance (strange concept i know)

There are the sweatshop EBs/BBs and burn through analysts, knowing that in 1-2 years they'll exit to hf/pe, and then there are emerging banks/MM banks that want to groom their analysts and associates into meaningful careers.

I've been at my bank for a year now. No one in my group works past midnight, our deal flow is steady and we're open to hiring more people when theres more work. MD is good about keeping a positive culture where people's boundaries are respected.

Plus I'm really well liked here. The senior bankers trust me to do a good job, and honestly, leaving for a sweatshop for better exits seems like a risk with minimal ROI for me.

In general, your outlook seems really narrow. Not everyone likes PE/HF, not all banks make you do ppt 12 hours a day, and not everyone is gung-ho about traditional exits.

For people recently getting into PE and looking to get into PE, you really need to have a realistic view of what working in PE will actually mean for you comp wise long-term (answer is not much). BB/EB/top MM IBs will pay comparable if not better than most PE funds. Not everyone gets into MFs/upper MM. Vast majority of funds are MM/LMM that most have barely heard of and don't pay as well as IB (excluding carry which is further discussed below), but have incredibly strong track records regularly hitting >5x on their investments (for LPs, it's not about the "prestige" of a fund, it's about returns).

For most people, PE is just another pit stop where you're either kicked out or left on your own accord after spending 2-7 years on the buyside (which could/often include having to go get your MBA, the lost earnings, and hope you can get back into PE post-MBA). The path to partner (i.e., where the real money is) is a huge grind and long, and only getting worse as the industry continues to mature. I don't think most people appreciate how long it takes to see meaningful carry distributions. It's not uncommon to take 7-8 years in PE before you see your first carry check, and those early carry distributions aren't particularly life changing since you were allocated that carry as a VP, certainly no where close to fuck you money or even retiring for that matter. There are some reports online that shows average PE comp based on fund size/AUM. You can run also the math on roughly when carry will be distributed and how much. It's fairly reasonable to assume you won't get any carry your first 2-3 years in PE (as an Associate). As a VP (let's say year 4 if you were lucky enough to not go get your MBA), maybe 75-125bps for a $1bn fund (this will vary quite a bit based on fund size and frankly how generous the senior partners want to be), which your first carry check will come 3-5 years after you were first allocated the carry, and majority of the carry takes 4-5 years to be distributed (investments and respectively exits are staggered). I would argue VP is when you first actually start climbing your PE career.

It is true that as the firm continues to fund raise, you'll get carry in the new funds (likely more bps as well since you'd be more senior). So if you finally become a Senior Principal/Partner with carry across multiple funds that are consistently distributing carry every year, that's when the real money starts to hit. But again, that's not an easy path and most people leave before that, and end up giving up unvested carry. Even junior partners are not getting lion share of the economics, that all goes to the senior partners / founders. Why do you think there are so many new funds these days (the old partners don't want to share in the economics, so junior partners leave)? What happens when you start your own fund or lateral to a newer fund (you gave up unvested carry in your old fund, and your new carry is based on a smaller fund with less track record and the carry clock resets again). PE isn't an industry where people are rewarded for moving because of how the economics/vesting of carry work. It's not like IB where you can lateral and be guaranteed a minimum amount of earnings your first year or two while you "ramp". Vast majority of PE professionals that entered the industry the last 10 years are "paper rich", assuming you've even made it for this long, and who knows where capital gains tax rates will eventually move to.

If you want to maximize your earnings on a risk adjusted basis, stay in IB and move up the ranks as quickly as possible before you're burnout/fired and go live a normal life, because most people will leave "high finance" after 2-7 years regardless of sellside/buyside.

This is a very insightful thread - thanks to OP and the WSO community for sharing their experiences and perspectives.

I'll share some thoughts from my experience that appears to add a new perspective, as I actually left a top MM bank after A3 for a top MM PE ($1.5B+), then left the MM PE shop to join a newly formed PE firm with a niche focus that I am passionate about, then left there to come back to the MM bank that I left.

A few key motifs to highlight at the onset: 1) I cannot stress enough the importance of fit in terms of establishing momentum and building on success in your career. Establishing a tight, cohesive team of colleagues can create significant operating leverage for sourcing and executing deals. You naturally gravitate toward how to complement each other and establish strong efficiencies that are atypical in finance, especially investment banking.

2) The grass is not always greener - people (including myself) are often eager to move on to something bigger and better based on perceptions rather than reality (because you haven't lived it).

3) The buyside does not necessarily have more "power" / "pull" when compared to banks. You would be surprised how much time the top PE shops spend on relationship development with banks. They want to ensure they are kept in the deal flow for the best opportunities that drive returns. Just because you are the "money" at the table, doesn't mean you have access to the assets to put that money to work. PE firms also need debt capital to supercharge equity returns... which they get from banks.

4) Risk adjusted compensation is higher in IB than PE

Onward...

I did three years as an analyst at a top MM firm - worked like a dog and ramped up nicely quickly over my three years. I had the privelege of working with a top group and developed a bit of expertise working exclusively with two MDs. As I progressed through my analyst stent, I was able to establish trust with my team and take on significantly more responsibility than is typically assigned to analysts - which I found extremely rewarding. I was compensated very fairly, and my firm is notorious for treating people the right way - there is a stated "no asshole" policy. While I was an analyst, direct promotions to Associate had not been established at my bank - you had to go get an MBA (which they would pay for) and come back. I had no interest in that, so I decided to pursue PE and landed a gig at a reputable firm with a $1.5B+ fund that has been around for over 50 years.

I had a great experience in private equity, closing four deals in my first year and being the top comped Associate in my class. However, I discovered that the structure at my shop was very rigid - which gave me angst given I was accustomed to working up the chain in banking. Roles and responsibilities were pretty defined, and Associates were really treated as analysts - lowest guy in the stack. Despite the firm treating Associates well, there was no long-term opportunity (do 2-3 years then out). So, I decided to pursue an opportunity where I could have more vertical flexibility, opportunity to move up and take on more responsibility. At the end of my first year, I decided to leave and go to a "start-up" PE fund with an industry specialized merchant banking firm that was transitioning to private equity.

This move was a great learning experience, as I was running entire deals by myself (smaller deals ~$5m EBITDA), but still executing. There was also huge upside in terms of carry and co-investment opportunities in deals closed - but the base pay was way less. I was managing diligence, running the lender process, meeting with the CEOs and other top leaders of targets and spending weeks at a time performing on-site diligence and single-handily drafting investment committee presentations. At the end of the day, there was too much risk in terms of my compensation structure and if the entrepreneur owner managing partner decided not to do a deal, all of my work was for nothing. The risk was a bit too much for me, and I was starting to think about moving on. Serendipitously, my prior MM banking firm gave me a call one evening... this was a little over two years after I left - "Name, are you ready to come back?" Indeed, I was.

I came back as an experienced Associate and hit the ground running - my group has continued to gain tremendous momentum and build the long track record of successful M&A outcomes in the niche that I had become so passionate about (same niche as my smaller PE role). Given my prior experience with the group, I hit the ground running from an execution standpoint and it was great to have support at the analyst level. My MDs have also expressed significant gratitude for my return, and I have established a strong personal brand in my group and in our investment banking division overall.

I've been back for a year now, and I am incredibly happy with my decision. We are absolutely crushed from a work perspective, but the group of guys I work with are all awesome - we have a ton of fun, even at 3am when were are all still grinding. Given the strong fit and established rapport, I have established strong trust with my MDs and have taken on even more responsibility - they allow me to run with as much rope as I can take and manage. This environment allows me to be proactive and consistently pursue professional development. The grind is paying off, and I have been given the nod for VP promotion at the end of the year. Not bad for a kid from a state school.

Overall, the work you do in PE and IB is very similar - PowerPoint presentations, modeling, industry research, managing diligence / third-parties, etc. - just applied to opposite ends of the transactions. From a pay perspective, the risk weighted return in IB is much higher than PE. You are unlikely to be that outlier partner that is worth $100m+, but there is a clear path to progressing your career and wealth creation while still performing exciting (at least to me) work and working in an environment that you love and can prosper in. Always respect the grind - she's a beautiful and rewarding enchantress.

"There and Back Again... a Banker's Tale by THE_PsYcHoLoGy"