Breakdown of Post-IB Exit Opportunities
As there are many of you who are pursuing IB, we have written up a high-level overview of the different paths that one could take post-IB Analyst stint. We were in your shoes not too long ago, happy to answer questions or help where needed!
Welcome to Investment Banking: Where everyone on the outside wants in, and everyone on the inside wants out.
The worst-kept secret in the world of IB is that junior Investment Bankers are planning on staying at their bank forever. Sometimes it is necessary, of course, for these interns and analysts --typically-- to play the role publicly, but the real plan of action in the majority of cases is to make an exit.
This is not a bad thing, however, and is not a "knock" on the opportunity that IB can bring you. The opening of doors and barriers to these impressive exit opportunities are arguably the best part of the job out of undergrad, even when compared to the size of your incoming bonus or locked up salary for the year. That's how you should be thinking, at least.
Given our current macroeconomic views on what the future years and decades of the Finance industry will look like, we would highly urge you to consider the Buy-Side.
Much of Investment Banking's appeal comes with the roles it can unlock for you for your next gig. Some of the most popular exits from IB are jobs in the "buyside." The buyside includes Private Equity (PE and VC) and Hedge Funds. These jobs are essentially unlocked by doing a good enough job at your investment bank, and they can be tough to get without IB experience.
The #1 most sought-after Investment Banking exit-op is the transition from a 2nd year IB Analyst to the buyside an Associate at a Private Equity firm. There are many different types of Private Equity roles (most often when "Private Equity" is mentioned, it is referencing the classic buyout PE shop), so let's discuss the advantages and disadvantages of going into each.
Private Equity (PE, Growth Equity, Venture Capital):
Private Equity, the cherished golden path of High Finance, where everything is good in the world and you will finally have a strong work-life balance. At least that's what you have been telling yourself. In all seriousness, while PE will still require high discipline and focus, it has been a fantastic place to be in Finance over the recent stretch.
The great thing about investing roles dealing within private equity transactions, is that you could be well on your way to earn "carry" (read: carried interest) for the money your fund makes. Or at least, have part of your Bonus structure tied to how well your firm invests.
Venture Capital is funding young businesses and startups that generally have extremely high growth potential. This is a riskier investing model than the model that the standard Private Equity firms use, investing in companies that are more established and have already proven their worth in the market.
VC is an interesting place to be in your career, especially if you are interested in the emerging technologies of the world and enjoy being on the West Coast. However, working at a VC can pigeonhole you into the world of startups / entrepreneurship. If this is something you have interest in, there are still plenty of opportunities within this spectrum to keep you busy, but it is something to be aware of if you don't enjoy the tech world.
There are also Growth Equity investors who work in between the spectrum of Venture Capital and Private Equity. These Growth Equity firms are often still referred to as "PE shops," but they operate at a bit earlier business stage than the classic. Growth Equity is an interesting fit for you if you enjoy working with early stage companies, but not to the level that you are hoping to scout out the next Snapchat or Zoom from Silicon Valley.
Hedge Funds (Public Markets)
Similar to a Private Equity investing role (even more so in a lot of cases), Hedge Fund analysts can end up with a large chunk of their compensation tied to performance of their fund.
The downside to the public markets is that you fundamentally have much less slack to pull on as a firm when your performance can be tracked and updated every minute of the day. The private equity model allows for a much longer timeline for their investments, so you are less at risk of having your seat pulled out from under you on the private market buy-side (PE, VC).
Thethe past decade has cooled down due to the rise of passive investors (into index funds like the S&P 500 for example) and the rise of other investment opportunities (crypto, private equity, real estate).
These industry headwinds have caused thecompensation model of 2-and-20 (HF gets paid for 2% of Assets Under Management, and 20% of the profits of their investments) to shift in recent years to a more normal profit-take % of 15%.
Still, there is a ton of money to be made at the top if you play your cards right, you could make plenty of money and get to learn from some of the top traders in the world. You will not get away with having sloppy fundamentals in the mathematics and technical skills needed as a Hedge Fund Analyst.
Other Common Exit Opportunities:
The other popular exits for bankers after their 2 years analyst stint is Corporate Development, MBA, and Entrepreneurship. Notice that becoming an Investment Banker and completing your analyst program will allow you with huge career mobility. Any company in the business world would love to add an ex-banker to the ranks, as it is proof that you at least are somewhat smart and can work hard.
Corporate Development / Strategy:
This exit opportunity is the best path for those that are tired of the long, stressful hours in banking. Your typical Corp Dev gig post-IB stint will be a 9-5, which will free up time on the side for work-life balance (or to work on multiple income streams if you're smart!).
In Corporate Development, you will be responsible for executing M&A transactions and capital-raising (just like how it is in Banking), except you are now working for a company instead of a bank. The job requires much less of you than Banking or Private Equity would, but you are still making six figures and are doing similar work. You will likely work on the strategy side of the business with former management consultants.
Top 10 MBA (Warning!):
Many bankers will go and get their MBA either directly after their banking experience, or after getting a few years of experience on the buyside. The MBA Route certainly made more sense 15 years ago, when information and opportunities for collaboration through the internet weren't as built out as they are today. Many PE firms are no longer requiring that their juniors get an MBA, and you undergo massive opportunity cost to forfeit $200k+ jobs while shelling out tuition fees.
We would not recommend this route, but it is an option for people on the outside breaking in (maybe they didn't get a banking offer during their undergrad SA and FT cycle) and people who are looking to make a big career switch. We expect that with every year that passes, the prestige and worth of getting an MBA (even at a top-tier business school) should decrease continuously.
Last but not least is the route of rolling the dice and going out on your own. Perhaps through your stint in IB, you have learned the ins and outs of a market that you cover, and you have a strong game plan set for the next greatest product. Investment Banks typically attract more risk averse individuals, while entrepreneurship is the complete opposite risk tolerance point.
You could win big or you could lose big; most of these businesses end up failing. If you venture down this road, be prepared to face the tough sleepless nights where you are worried that doom is imminent for your brainchild, asking yourself why you didn't justlike everyone else did!
The Buyside opportunities (PE, HF, VC) are very appealing, but there are also many other ways to make money and better your life. At the end of the day, PE is the most preferred step after IB for a reason. This may not necessarily be what you do until the day that you die, but it is a fantastic career progression coupled with your prior sell-side experience.
Feel free to leave any questions in the comments or through PMs.
We wish you the best!